Hot Stock: Delta Air Lines

It could fly even higher.

While there’s not a lot of choice when it comes to flying with a Canadian airline, there’s even less to look at if you want to invest in them. Porter’s private, so investors can only buy Air Canada, which hasn’t done that well over the last five years, and WestJet, which has.

It’s a different story down south, where there’s more competition for your flying and investing dollars. One stock that analysts are keen on is Delta Air Lines Inc. (NYSE: DAL). According to Bloomberg, 81% of people who cover the stock say it’s a buy.

Jamie Baker, an analyst at J.P. Morgan, points out in an April 23 report that in Q1 the company posted a $7 million profit, the first time it’s had a profitable first quarter since 2000. That may not seem like much, but the three months after the busy December season is usually a bust. Its $0.10 earnings per share for that quarter beat analyst estimates by four cents and Baker’s own estimates by six cents.

He also says that the company has been able to successfully increase fares by about $3 to $5 for a one-way ticket. Competitors haven’t matched the price, he says, and no one thinks this slightly more expensive ticket will hurt them.

There’s optimism around its Q2 results too, which will be announced on July 22. Helane Becker, an analyst with Cowen Securities, writes in an April 24 report that the company thinks it can increase domestic capacity by 1% and international capacity by up to 2%. It will be the first time in two years that Delta has increased capacity. “We are comfortable with capacity growth as long as it’s profitable growth and not growth for growth’s sake,” she writes.

Given the good Q1 performance and management’s Q2 expectations, Becker expects to see $0.97 EPS in Q2, which would be an increase from $0.69 from Q2 2012. She expects EPS to grow in subsequent quarters as well. Baker is a little more conservative on the next quarter—he thinks Q2 EPS will come in at $0.86—but he’s more bullish than Becker on EPS growth in Q3 and Q4.

Baker is excited about the airline industry overall, writing that “cost convergence, fare unbundling, widespread consolidation, diminished new entrant activity, and return-oriented management teams have combined to form an industry that is actually managing itself for the first time we can recall.” Delta stands out, though, because of “compelling valuation and favorable industry dynamics and potential to attract significantly longer-term investor interest.”

The stock is trading at about $18 today, but Becker has a 12-month price target of $19, while Baker thinks it can hit $20.50. Other analysts have it climbing to between $20 and $23 over the next year.

You may not get high-flying returns with this company, but that’s OK — when it comes to airlines, you want to see a slow and steady climb.

For more investing insights, follow Bryan on Twitter @bborzyko.