Delta Air Lines (DAL) will report fourth quarter fiscal 2021 earnings results before the opening bell Thursday. Investors are hoping to learn several things, namely if Delta can extend its operational runway to emerge more profitable in the quarters ahead.
Having been one of the better performers in the transportation sector, Delta stock assumes its improved fundamentals will continue. The shares have risen 5% over the past thirty days, compared to a 2.3% gain in the S&P 500 index. These gains have been driven by a combination of factors, and perhaps the biggest was an upgrade from Neutral to Buy from analysts at Bank of America, who assigned a $48 price target, up from $46, citing among other things, Delta’s strong balance sheet and the limited share dilution potential.
The analysts also praised Delta’s capacity discipline relative to its peers, along with its cheaper valuation. For Delta, which ended 2021 on a positive note, the market appears willing to apply a relative premium to the stock, anticipating any increase capacity can help the airline recapture its pre-Covid EPS level of $7 per share. How realistic that figure is remains to be seen. The recent spate of flight cancellations due to the omicron-induced staffing shortage could be a near-term headwind. As such, on Thursday the market will want to see continued fundamental improvements and upbeat guidance before determining the next direction for the stock.
For the three months that ended December, analysts expect Atlanta-based transportation giant to earn 12 cents per share on revenue of $9.14 billion. This compares to the year-ago quarter when the loss came to $2.53 per share on $3.97 billion in revenue. For the full year, the loss is projected to be $4.28 per share, compared to a year-ago loss of $10.76 per share, while full-year revenue of $29.43 billion would rise 71.6% year over year.
It’s worth noting that the expected EPS of 12 cents is a stunning reversal from just two months ago when the Street projected a loss of 18 cents. The market has seemingly factored a rebound in passenger traffic during the holiday season, driven by a surge during the Thanksgiving holiday. The question is, the degree of impact the recent spate of flight cancellations on Christmas Eve has had on these estimates. If any, this is likely to also affect the Q1 guidance, which could pressure the stock in the near term.
Delta has beaten consensus earnings estimates in the last two reporting periods. In the third quarter, not only did the airline reported a small profit, Q3 revenues easily beat analyst estimates by almost $700 million. Q3 revenue came in at $9.15 billion, which was more than $1 billion higher than the the second quarter. The company posted an adjusted EPS of 30 cents which beat estimates by 15 cents. Notably, this was even as passenger revenue recovered to 63% of 2019 levels.
The Q3 results suggests that the management is making the best out of a situation that is out of their control. The company is expected to have benefited from low fuel expenses during the quarter. For the soon-to-be reported quarter, consensus estimates calls for decline in fuel price per gallon. It remains to be seen whether this cost benefit is significant enough to yield a profit beat.
With the stock trading near yearly lows, while passengers are flying close to full recovery levels, the risk-reward favors the long side. For that to matter, on Thursday Delta must demonstrate it is better positioned to thrive when travel demand resumes.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
Richard Saintvilus
After having spent 20 years in the IT industry serving in various roles from system administration to network engineer, Richard Saintvilus became a finance writer, covering the investor's view on the premise that everyone deserves a level playing field. His background as an engineer with strong analytical skills helps him provide actionable insights to investors. Saintvilus is a Warren Buffett disciple who bases his investment decisions on the quality of a company's management, its growth prospects, return on equity and other metrics, including price-to-earnings ratios. He employs conservative strategies to increase capital, while keeping a watchful eye on macro-economic events to mitigate downside risk. Saintvilus' work has been featured on CNBC, Yahoo! Finance, MSN Money, Forbes, Motley Fool and numerous other outlets. You can follow him on Twitter at @Richard_STv.
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