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Brand Face-Off: Delta Air Lines, Inc. vs. Southwest Airlines Co.

Evaluating DAL and LUV from technical and sentiment viewpoints

by 1/13/2014 12:04:52 PM
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Delta Air Lines, Inc. (NYSE:DAL) and Southwest Airlines Co. (NYSE:LUV) have both taken the charts by storm over the past year -- DAL shares are up about 135% to trade at $31.47, and LUV has tacked on roughly 89% to perch at $20.89. The stocks' impressive longer-term gains have extended into 2014, too. In fact, Delta has climbed more than 14% since the turn of the year, and reached a record peak of $31.78 earlier today. Likewise, Southwest is up 11% year-to-date, after notching a 12-year high of $21.20 this morning.

Daily Chart of DAL since January 2013

Daily Chart of LUV since January 2013

Given the equities' strong technicals, it comes as no surprise that sentiment toward DAL and LUV is relatively bullish right now. To be specific, eight of DAL's nine covering analysts have deemed the stock worthy of a "buy" or better endorsement, while 67% of the brokers weighing in on LUV have dished out "strong buy" recommendations. Furthermore, during the most recent reporting period, both equities saw a large number of short sellers hit the exits. Particularly, short interest dropped 51.4% on DAL, and 22.6% on LUV, during this time frame.

In the options pits, speculators have favored calls over puts on both Delta and Southwest during the past two weeks. DAL's 10-day International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) call/put volume ratio of 8.44 is 6 percentage points shy of a 12-month peak, demonstrating calls have been bought to open over puts at a near-annual-high pace recently. Meanwhile, LUV's corresponding call/put volume ratio comes in at 5.51, ranking in the 52nd annual percentile. In other words, while long calls have outnumbered long puts by a margin of more than 5-to-1 in recent sessions, this activity is about average for the stock.

Looking forward, both Delta Air Lines, Inc. (NYSE:DAL) and Southwest Airlines Co. (NYSE:LUV) are slated to report fourth-quarter earnings next week. DAL will post results ahead of the open on Tuesday, Jan. 21, and LUV's announcement is tentatively scheduled for Thursday, Jan. 23. Analysts, on average, are expecting a per-share profit of 63 cents from Delta, a figure that is 35 cents higher than the company's year-ago earnings. And, for Southwest, analysts project a profit of 28 cents, a 19-cent mark-up to last year's results. As such, both equities are poised to hit higher highs in the near term, should they report strong quarterly results.

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