EFTA01461861.pdf

Deutsche Bank Markets Research Rating Date 9 June 2014 Buy Delta Air Lines, Inc. Forecast Change North America United States Et:nano T:ckot Price at 6Jun 2014 1USDI 42.23 Industrials DAL N DAL US NYS DAL Price Target 48.00 Airlines 52...yea range 42.23 - 17.36 EPS momentum carrying into 2H EfitetY lvtichml Lincnbece 2014/2015; Raising estimates/PT Research Analyst (+I) 212 250-9254 EPS momenium 'yen by better revenue e<pec led to continue michaellinenberg@dboom Since the start of the quarter, revenue trends have been stronger-than- expected. In May, Delta unit revenues increased 7%, at the high end of the Rielia fitv;isr company's +6% to 7% range (tightened higher from +5% to 7% in the beginning of May). That PRASM came in at the high end of the tightened Research Associate range could reflect better close in (i.e. business) bookings, in our view. Given (+11212 250-9469 that we are seeing similar trends across our US airline coverage universe, we [email protected] believe that we are not only seeing the benefits of consolidation, but that the macroeconomic backdrop is also improving. As such we are raising our June Coax-ono ,1"ibi•bi Q and Pi 2014/2015 estimates and raising our PT: Buy. Research Associate Jet fuel should also provide a tailwincl (+1)212 250-8949 In addition to the aforementioned strength in revenue trends, we have also catherinem.ebrionCadb.corn seen jet fuel crack spreads narrow markedly over the past month and a half, providing a further boost to June Q earnings. Jet fuel spreads to Brent and Rad Income WTI have decreased 34% and 20% since mid-April, so while Brent and WTI are Doug Remo, CEA trading at similar levels the price of jet fuel per gallon has fallen 4%. Research Analyst Raising June 0, 2014, and 2015 riarnmcbl (+ 11 212 250-9319 We are raising our June 0 2014 EPS estimate to $1.05 (vs. consensus of $1.02) [email protected] from $1.00 as strong revenue and lower fuel prices are better-than-expected. We expect the revenue strength seen in the June Q to continue in the second Key changes half of 2014 and into 2015 as the benefits of the last round of consolidation provide better pricing power and the macro backdrop improves. As such, we Price Target 40.00 to 48.00 20.0% are raising our 2014 and 2015 EPS estimate to $3.05 (vs. consensus of $3.04) EPS jUSD) 285 to 3.05 7.0% from $2.85 and $3.55 (vs. consensus of $3.51) from $3.10, respectively. Revenue 40.026 to 40.368 0.9% (USD01) Valuation and risks SCGIC• tA.....:OND 8.•-•1 Given our improved earnings outlook and our belief that Delta merits a multiple slightly above the group's historical range given its continued efforts to de-risk the business and reward shareholders (plans to pay down an additional $2 billion in net debt, increased dividend by 50%, and announced new $2 billion share repurchase program during the June 0), we are raising our price target s°0 to $48 from S40. Our price target is derived by the application of a 13.5 PIE multiple to our 2015 forecast, slightly above the group's historical 10x - 12x range. Turning to risks, fuel price volatility is a key risk for Delta —we estimate every 100/0 move in jet fuel (ceteris paribus) impacts our 2014 EPS forecast of 611 121)2 ail 3 12/13 $3.05 by $0.70. Other risks include economic weakness, government —ow Pa twat. tee regulation, labor issues, the threat of terrorism and war, and the revaluation of %PSC,' tuOtac cOt.b...41 the stock market resulting in higher equity risk premiums for airline stocks. Performance ro Im 3m 12m Absolute 12.0 19.4 141.5 !fOfeCalli And 'limn S&P 500 INDEX 4.4 3.9 20.1 Year End Dec 31 2013A 2014E 2015E sent oaarew ant FY EPS (USD) 114 3.05 3.55 P/E (x) 6.4 13.9 11.9 Revenue (USDm) 37,773.0 40,368.3 43,069.5 San Denbo an opting coastrible Deutsche Bank Securities Inc. Deutsche Bank does and seeks to do business with companies covered in its research reports. Thus, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. DISCLOSURES AND ANALYST CERTIFICATIONS ARE LOCATED IN APPENDIX 1. MCI (P) 148/04/2014. CONFIDENTIAL - PURSUANT TO FED. R. CRIM. P. 6(e) DB-SDNY-0124134 CONFIDENTIAL SDNY_GM_00270318 EFTA01461861