Delta Air Lines at Cusp of Major Upside

Delta Air Lines Inc. (DAL) kicks off first quarter earnings season in Thursday’s pre-market, with analysts looking for a Q4 2021 profit of $0.14 per-share on $9.29 billion in revenue. If met, that small sum will mark a major turnaround, compared to the $2.53 loss posted in the same quarter last year. The stock sold off nearly 6% in October, despite beating Q3 top and bottom line estimates, after the company warned that rising fuel prices would impact Q4 profitability.

The Future Looks Bright

Major airline carriers are suffering through Omicron-induced disruptions, with sick employees forcing the cancellation of thousands of flights. However, passenger counts have declined for the same reason, making it easier and more profitable for airlines to combine scheduled reservations. In addition, pandemic disruptions should ease as quickly as they appeared, with health experts expecting the variant to peak and turn lower in the next few weeks.

BofA Securities upgraded Delta to ‘Buy’ last week while Jefferies analyst Sheila Kahyaoglu raised her target to $50, noting “Following a challenging 2021 and the ongoing spread of Omicron, 2022 sets the stage for another year of recovery w/airline passenger revenues exiting 2021 ~20% off the peak and slated to be ~5% off by the end of 2022. DAL is our top pick given exposure to transatlantic travel (52% of int’l) and SME corporate travel (50% of corporate), along with the cleanest balance sheet of the network carriers.”

Wall Street and Technical Outlook

Wall Street consensus stands at a ‘Moderate Buy’ rating based upon 13 ‘Buy’, 2 ‘Outperform’, 7 ‘Hold’, and 0 ‘Sell’ recommendations. Price targets current range from a low of $42 to a Street-high $67 while the stock is set to open Tuesday’s session about $1 below the low target. This dismal placement highlights investor caution after multiple variants but could mark a buying opportunity as infection-induced immunity stretches across the planet and new drugs lower COVID’s lethality.

Delta Air Lines recovered about two-thirds of the 70% decline posted in the first quarter of 2020, topping out just above 50 in March 2021. A shallow decline since that time hit a 52-week low in early December, ahead of a bounce that now testing 200-day moving average resistance. Accumulation has barely budged in the last six weeks but that could change if Thursday’s release includes an upbeat assessment of travel demand after Omicron.

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Disclosure: the author held no positions in aforementioned securities at the time of publication.