Mixed Outlook for Delta Ahead of the Rate Announcement

Mixed Outlook for Delta Ahead of the Rate Announcement
June 17, 2015

 
Delta Airlines (NYSE:DAL) is just one of the players in an industry that has benefitted from the recent low oil prices.

When oil prices stay below the $100 mark, the aviation industry is poised to do better than most. That being said, it is no wonder that companies in such industries are striving in a low inflation/low oil prices environment. This can be seen in Delta’s stock price as well: from $5/share in 2009 to a peak of $50.56/share at the start of 2015, basically a growth of ten times in a matter of six years.

What is interesting is that this rise is not due only to lower oil prices. It actually started way earlier and this says much about the ability of company’s management to boost shareholders value.

Recently, as part of its expansion plans, Delta announced that it has awarded a $4billion contract to Boeing. The new aircraft are to be delivered in an attempt to keep the average fleet age well below standards require, and to benefit from the new developments in the aviation industry.

Delta has also made impressive steps ahead of the competition in boosting its online booking department. A combination of new elements together with a new vision regarding how online booking and travel websites work, has brought a new perspective to their customers.

From a bigger picture, a macro one, low interest rates and lack of inflation in the United States made borrowing affordable for companies. This means the economic environment was one that stimulated growth. However, this may change as the Federal Reserve is preparing to hike the interest rates in what may turn out to be the most important meeting in the last years.

The June meeting will have the rate hike high on the agenda. In delivering this, the Fed will send a seismic shock over emerging markets and global economic environment overall.

This should translate in difficult conditions for any company, especially the larger ones that are also international players: Delta is in this group.

If the Fed keeps a dovish tone and delays the hike until later in the year, or even suggests that it will postpone it until 2016, then stock market will fly higher and best performers would thrive. In this scenario, Delta should benefit as well.

My take is that Fed is going to hold and I would favor call options on the NYSE:DAL stock price, with end of June expiration date.

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Andrew Wright

Prior to founding tradersasset.com in 2014, Andrew worked as a proprietary trader, then as a market maker. As a market maker, he traded options in over 100 stocks, he then began trading currency pairs in 2013. Andrew still actively trades both, and prides himself on educating and informing traders on the benefits of both Binary Options and Forex.


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