Delta Air Lines, Inc. (NYSE: DAL ) will step into the earnings limelight next week amid rising oil prices and quarter that saw an IT issue result in massive flight cancellations. On the bright side, Delta is reportedly getting capacity under control, and should turn things around heading into the holiday travel season. These latter two points should have bullish implications for Delta stock going forward.
Source: via Delta
Diving into expectations, Wall Street is forecasting a profit of $1.65 per share from Delta, down from $1.74 per share a year ago. What's more, despite the airline's troubles during the quarter, capacity grew 1.8% - a win for Delta even though growth was down from 3.2% in the previous quarter. The company plans on limiting capacity growth to just 1% in the fourth quarter, which should help bolster revenue.
Sentiment on Delta stock remains largely bullish overall. According to data from Zacks, eight of the 10 analysts following DAL rate it a "buy" or better, with nary a "sell" rating to be found.
Zacks also reports a consensus price target of $51.65, with a range between $41 and $60. Delta stock is currently hovering just below $40 heading into the open this morning.
Click to Enlarge Turning to options activity, we find that DAL bulls are in full control. Currently, the October put/call open interest ratio arrives at 0.54, as calls nearly double puts among options set to expire this month. That said, there is some caution heading into DAL earnings, as the ratio rises to 0.73 for the weekly October 14 series.
Overall, weekly October 14 implies are pricing in a potential post earnings move of about 4.68% for DAL. This places the upper bound near $41.81, while the lower bound lies at $38.07 from Thursday's close.
A post-earnings rally would leave Delta stock shy of overhead resistance near $42 - which is also home to the stock's descending 200-day moving average. A decline, meanwhile, pushes the shares back toward support at $38, and DAL's 50-day moving average. All in all, there's the potential for a nice short-term move, but Delta stock appears likely to remain range-bound over the longer-term.
2 Trades for Delta Stock
Call Spread: With the prospects for higher revenue going forward, and the holiday travel season fast approaching, Delta stock has some momentum on its side. What's more, the stock has steadily advanced heading into next week's report.
With a technical tailwind already behind the shares, traders may want to consider an Oct $40/$42 bull call spread. At last check, this spread was offered at 73 cents, or $73 per pair of contracts. Breakeven lies at $40.73, while a maximum profit of $1.27, or $127 per pair of contracts, is possible if Delta stock closes at or above $42 when October options expire.
Put Spread: The Federal Reserve and interest rates remain wild cards for Delta stock - as well as the potential impact of Hurricane Mathew. If Delta's outlook comes in below expectations, or if Wall Street's reaction to the odds of an interest rate hike create a broad selloff, the situation could go south for DAL in a hurry. Traders siding with the bears might want to consider an Oct $38/$40 bear put spread.
At last check, this spread was offered at 73 cents, or $73 per pair of contracts. Breakeven lies at $39.27, while a maximum profit of $1.27, or $127 per pair of contracts, is possible if Delta stock closes at or below $38 when October options expire.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
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