Delta Air Lines (DAL) still flies high among airline stocks, according to analysts on Wall Street.
Shares of the company have seesawed throughout Tuesday's trading as the market contends with a positive report on fourth quarter earnings, but a cloudier forecast and potential impacts of a government shutdown eating into profits moving forward.
Nonetheless, analysts are standing by the stock's longer-term promise as the first stock to check for airlines.
"We continue to view Delta as the industry leader," JPMorgan analyst Jamie Baker wrote on Tuesday. "Delta generates the highest margins of the legacy airlines, the company is the leading innovator - creating Basic Economy, for example - the management team is widely viewed as the most savvy, and its balance sheet is the strongest of any legacy carrier in the history of the industry."
Baker argued that when this leadership role is combined with the dividends and share buybacks offered to buoy returns for shareholders, the investment case for the company "is quite compelling."
The return to shareholders was highlighted strongly by Delta CFO Paul Jacobsen during the company's earnings call on Tuesday.
"In the December quarter, we returned $325 million in share repurchases and $238 million in dividends for a total of $2.5 billion returned to shareholders for the year," he told analysts. "We expect a similar level in 2019, in line with our target of returning 70% of free cash flow to shareholders annually."
The focus on sustained returns and strong overall profile helped motivate Baker to issue an "Overweight" rating for the stock alongside a $59 price target.
His bullish target was largely in line with the assessment from Wall Street overall, which maintained a consensus "Buy" rating despite many price cuts coming into play.
Cashing in on Cargo
One interesting thread from Delta is the fact that its cargo business is actually cashing in on both passenger and cargo amidst the trade war.
"Our revenues to China, a market that's driving some trade and travel concerns, grew 27% in the fourth quarter, and we expect a similar level of growth this quarter," CEO Edward Bastian commented, touting the company's resilience to jingoistic actions from the world's two largest economies.
The trade war appeared to paradoxically benefit Delta in its cargo business as well, as many attempt to circumvent the protectionary barriers set by both China and the U.S. with airline carriers.
"What you've got to think about what's going on with the tariffs in the more macro sense and how people are trying to offset tariffs whether they're using air or sea," Delta Air Lines President Glen W. Hauenstein told analysts.
As such, some of the impact that has been seen as stinging supply chain and possibly customer demand could be driving demand for the cargo services.
Cargo revenue increased 5.4% year over year for the company even as Pacific passenger revenue remained largely flat.
The overall consensus on The Street is prevailing with the view that the stock is taking its lumps, but should be able to take flight again.
The consensus on Wall Street remains a "Buy" rating with a price target at $64.55, significantly above Tuesday's price.
"[Delta is] down, but not out," Stephen "Sarge" Guilfoyle commented in his column on Tuesday morning. "Right now, I think Delta might be interesting at these valuations and the firm does pay investors 2.93% just to be there."