If you’re a large blue chip company, then you know how hard it is to generate robust growth. Yet that’s precisely the case with Boeing (NYSE: BA), which I profiled earlier this month as my top pick for the Dow in 2013. Boeing’s production ramp of new planes should help keep the top line growing at a brisk clip in coming years.

In a bit of irony, it is another airline play that’s shaping up to be one of the best stocks in the S&P 500 right now. It’s a company that may not be poised for solid revenue growth in coming years as Boeing is, but it’s delivering a set of bottom line results so impressive, it’s only a matter of time before investors finally wake up to this stock’s ultra-deep value.

I’m talking about Delta Airlines (NYSE: DAL), which continues to post the best metrics in the airline industry. And these metrics are poised to get even better.

I first profiled Delta’s impressive flight path in the summer of 2011, concluding that “Delta is an extremely well-run company with a very cheap stock.”

After digesting just-released third-quarter results, it’s time to revisit how the company is faring and understand why this stock — which has risen 27% since I profiled it last summer — has at least 50% upside from here.

Getting its house in order
Delta’s biggest task during the past few years has been to ensure that a debt-laden balance sheet went on a diet. Quarter after quarter, Delta has generated solid free cash flow. The carrier has paid off more than $5 billion in debt since the end of 2009, bringing net debt below $12 billion. And almost all of the remaining debt won’t be due for many years to come. The carrier’s access to more than $5 billion in liquidity (between cash and untapped credit lines) means that a flirt with bankruptcy in a sharp economic downturn is off the table.

But deleveraging a balance sheet can only help a stock up to a point. Instead, it’s the income statement metrics that investors will focus upon as they look for upside. 

And this is where Delta’s outlook is getting brighter. 

In the third-quarter, Delta generated an industry-leading 10.2% operating margin. This has fueled a solid return on invested capital, which is now around 12% during the past 12 months. The remarkable aspect is that these figures have come at a time when the global economy sharply slowed and jet fuel prices sharply rose.

The results should only get better in the quarters ahead for one simple reason: Jet fuel prices have begun dropping, and according to this article from The Wall Street Journal, they could drop far lower. 

Even before any projected drop, Delta is setting the stage for solid fourth-quarter upside, thanks to current jet fuel price trends. As part of management’s formal fourth-quarter guidance, Delta is assuming jet fuel prices of $3.15 to $3.20 a gallon (compared with $3.14 a gallon in the third-quarter). Yet jet fuel prices have recently fallen below $3 a gallon on the spot market. Assuming that analysis from The Wall Street Journal plays out, then jet fuel prices could move toward $2.75 a gallon by the end of the quarter. This could set the stage for earnings upside.

Looking beyond fuel prices in the near-term, Delta is about to embark on another round of streamlining that will shed another $1 billion in expenses by the end of 2013. Even though Merrill Lynch’s analysts assume Delta’s revenue will grow just 1% in 2013 to $36.9 billion, they say cost cuts should fuel a 50% jump in earnings to about $2.85 per share (and they see earnings rising to $3.40 per share in 2014).

From another perspective, Delta is on track to boost free cash flow 25% this year to about $2 billion. Thanks to a combination of operational streamlining and a slowdown in capital spending, free cash flow is also expected to rise to $2.5 billion in 2013 and $3 billion by 2014. This is quite impressive for a company that is valued at just $8.5 billion.

To put this into context, we’re talking about a $10 stock. Why does this stock sport such a low forward multiple? Because investors, freshly scarred by American Airlines parent AMR’s bankruptcy filing around a year ago, still don’t trust this industry to survive the tough times. Yet as Delta keeps proving its mettle in a very tough global economy, these concerns will eventually abate. 

Risks to Consider: If the United States slips into recession in 2013, then shares of Delta are likely to be stuck in neutral — at best. So focus on this stock for its long-term potential. 

Action to Take –> While the economy is in a funk, the airline industry won’t see a big move up in earnings multiples. But in Delta’s case, it won’t take much. Even if the price-to-earnings (P/E) ratio moves up to just six times Merrill Lynch’s 2013 forecast, then shares are likely to move past $17, or more than 70% above the current price ($2.85 X 6 = $17.10).

Myopic investors are only taking note of Delta’s progress quarter-by-quarter, though you can benefit by focusing on this high-quality company’s long-term path of steadily rising profits and a steadily stronger balance sheet. If you’ve got a longer time horizon, then Delta is on a path to earn nearly $4 a share by 2015. Slap a forward multiple of six on this figure, and you can see why this stock could move up into the low $20s during the next few years.