Delta Air Lines Shares Jump on Earnings Beat, But Flags Omicron Risk

Delta Air Lines shares jumped as much as 4.7% on Thursday after the airline company reported better-than-expected earnings and revenue in the fourth quarter but anticipates making a profit this year as travel demand increases.

The Airline company, which provides scheduled air transportation for passengers and cargo throughout the United States and across the world, reported quarterly adjusted earnings of $0.22 ​​ per share in the holiday quarter, beating the Wall Street consensus estimates of $0.14 per share.

The company said its revenue jumped more than 135% to $9.47 billion from a year ago. That too was above the market expectations of $9.21 billion.

In the first quarter of 2022, the Atlanta-based airline expects revenue to reach 72% to 76% of what it was in 2019. It expects pre-pandemic capacity to be restored to 83% to 85% during this quarter. According to the forecast, the company’s capital expenditures in the quarter will increase by about 69% from the December quarter, according to a Reuters report.

The increasing number of cases of the new Omicron Coronavirus is one of the biggest risks facing the airline industry. After COVID-19 brought the industry to its knees in 2020, American airlines have come a long way. However, the pandemic still lurks in the background.

In a short-staffed industry, a highly contagious virus variant has caused havoc with a new wave of sickness caused by the Omicron Coronavirus. In addition to a spike in daily sick calls, winter storms have also led to massive flight cancellations.

Delta Air Lines shares jumped as much as 4.7% to $42.52 on Thursday. The stock gained over 7% so far this year after falling nearly 3% in 2021.

Executive Comments

“The recent rise in COVID cases associated with the omicron variant is expected to impact the pace of demand recovery early in the quarter, with recovery momentum resuming from President’s Day weekend forward. Factoring this in to our outlook, we expect total March quarter revenue to recover to 72 to 76% of 2019 levels, compared to 74% in the December quarter,” said Glen Hauenstein, Delta’s president.

Analyst Comments

“Delta reported 4Q21 revenue of $9.47 billion, above the $9.2 billion consensus but below our estimate of $9.6 billion. Adjusted pretax income of $170 MM was also lower than our $202 MM estimate and below investor day guidance. Delta was on track for a better quarter, but flight cancellations hurt results at the end of the month,” noted Helane Becker, equity analyst at Cowen.

“We believe March will “make” the current quarter as January is likely to be a difficult month given the continued impact of winter weather and the omicron variant. Delta noted they are starting to see fewer sick calls this week among its personnel, so perhaps we are past the peak of employee illnesses. Revenue in the March quarter is forecast to be 72% to 76% of 2019 levels, which is about in line with the 74% recovery in the December quarter. Management is forecasting capacity will be 83% – 85% of 2019 levels; fuel price / gallon of $2.35 to $2.50 and CASM, ex up~15% compared to March 2019. Adjusted net debt is forecast to be ~$22 billion.”

Delta Air Lines Stock Price Forecast

Fifteen analysts who offered stock ratings for Delta Air Lines in the last three months forecast the average price in 12 months of $53.07 with a high forecast of $67.00 and a low forecast of $42.00.

The average price target represents a 26.09% change from the last price of $42.09. From those 15 analysts, 12 rated “Buy”, three rated “Hold” while none rated “Sell”, according to Tipranks.

Morgan Stanley gave the base target price of $60 with a high of $96 under a bull scenario and $33 under the worst-case scenario. The firm gave an “Overweight” rating on the airlines’ stock.

“Why Overweight? Delta Air Lines (DAL) has some of the strongest customer satisfaction numbers among the other Legacy peers, while also commanding a higher PRASM, making it our preferred Legacy carrier. While DAL cannot escape Legacy overhangs (delayed International/corporate recovery, strained balance sheet), it should rise with the industry tide. The risk-reward looks attractive,” noted Ravi Shanker, equity analyst at Morgan Stanley.

Several other analysts have also updated their stock outlook. BofA Global Research raised the price objective to $48 from $46. Bernstein lifted the target price to $67 from $61. Jefferies upped the target price to $50 from $45. Citigroup cut the price target to $56 from $58.

Technical analysis also suggests it is good to hold for now as 100-day Moving Average and 100-200-day MACD Oscillator giving mixed signals.

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