Delta Air Lines Fairly Valued Ahead of Earnings

Delta Air Lines Inc. (DAL) reports Q3 2021 earnings next week, with analysts expecting a profit of just $0.16 per-share on $8.41 billion in revenue. If met, earnings-per-share (EPS) will mark a major turnaround from the $3.30 loss posted in the same quarter last year. The stock sold off in July despite beating Q2 estimates and struggled through the summer months due to numerous cancellations as a result of the Delta variant.

Ticket Sales Growing Once Again

Chief Executive Ed Bastian sounded upbeat last weekend, indicating that ticket sales had started to improve, allowing the company to maintain its modest Q3 revenue forecast. He noted that sales “bottomed out in the later part of August and the first part of September” and that “business traffic is growing back in the U.S.” However, the second comment sounds too optimistic, with many corporations announcing delays until at least the start of 2022 as a result of the pandemic.

The Q3 forecast predicts a 30% to 35% drop in adjusted revenue compared to 2019 levels. On the flip side, it’s looking for domestic travel bookings to surpass 2019 levels in 2022, which is unlikely if another variant impacts sentiment. International bookings may be the wild card heading into next year, with Delta increasing overseas flights as a result of President Biden’s decision to allow foreign travelers, starting in November. Those flights accounted for up to 17% of total 2019 revenue for the big three air carriers.

Wall Street and Technical Outlook

Wall Street consensus has deteriorated since the start of 2021 due to pandemic headwinds, yielding an ‘Overweight’ rating based upon 11 ‘Buy’, 2 ‘Overweight’, and 11 ‘Hold’ recommendations. Price targets currently range from a low of $45 to a Street-high $67 while the stock is set to open Thursday’s session on top of the low target.  Risk of further downside after the earnings release looks minor, given this humble positioning and CEO comments.

Delta Air Lines ground sideways in a trading range between the mid-40s and low 60s for more than two years, breaking down during 2020’s pandemic decline and hitting a 7-year low. The subsequent recovery wave ended less than one point below the .786 Fibonacci selloff retracement level in the low 50s in March 20201, giving way to a pullback that found support in the mid-30s during the summer. The stock has now rallied back above the 200-day moving average near 42, with this support level likely to hold through the rest of 2021.

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