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Delta Air Lines Q2 Preview: Can Shares Take Flight?

·4 min read
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If anything is certain, it’s that the 2022 Q1 earnings season was one for the books. Now, we’re quickly ramping up for Q2.

Many companies will soon start to unveil their quarterly results. Investors are eager to see how businesses have dealt with inflationary pressures and supply chain interruptions, many of which have been caused by the ongoing war in Ukraine.

On deck to report quarterly results before the market opens on Wednesday is the classic airliner Delta Air Lines DAL. The company is one of the four carriers that control the majority of the United States aviation market, with its carriers accounting for more than 60% of the domestic market share.

It’s no secret that the COVID-19 pandemic hit the company hard, and now it looks to capitalize on a boom in travel following the easing of lockdowns worldwide.

Currently, DAL is a Zacks Rank #3 (Hold) with an overall VGM Score of an A. The company resides within the Zacks Transportation – Airline Industry, which currently ranks in the bottom 15% of all Zacks Industries.

Let’s dive a little deeper to see how the company shapes up heading into Wednesday.

Share Performance & Valuation

Year-to-date, DAL shares have had a heightened level of volatility, declining more than 25% and underperforming the S&P 500 by a wide margin.

Zacks Investment Research
Zacks Investment Research

Image Source: Zacks Investment Research

Upon widening the timeframe to encompass a year’s worth of price action, the story remains the same – DAL shares have struggled to catch their footing, declining by more than 30% in value.

Zacks Investment Research
Zacks Investment Research

Image Source: Zacks Investment Research

Although the share performance leaves something to be desired, DAL sports enticing valuation metrics. Its 0.4X forward price-to-sales ratio is well below its five-year median value of 0.9X and is nowhere near 2020 highs of 1.6X.

Additionally, shares trade at an enticing 38% discount relative to its Zacks Industry. DAL has a Style Score of an A for Value.

Zacks Investment Research
Zacks Investment Research

Image Source: Zacks Investment Research

Quarterly Performance

Over its last four quarters, DAL has posted impressive bottom-line results, exceeding EPS estimates each time and acquiring an average EPS surprise of a double-digit 44%. In its latest quarter, Delta Air Lines beat the Zacks Consensus Estimate handily by 4% and reported quarterly EPS of -$1.23.

In addition, the top-line has been strong, with DAL exceeding quarterly revenue estimates in six consecutive quarters. Quarterly revenue has recovered nicely following the pandemic lockdowns, as illustrated in the chart below.

Zacks Investment Research
Zacks Investment Research

Image Source: Zacks Investment Research

Shares have mixed reactions to EPS beats – shares have moved upwards just twice out of its last four EPS beats. However, shares have moved downwards three times out of its previous four EPS misses.

All in all, it looks like shares stand to decline if the company reports bottom-line results under expectations.

Growth Estimates

Quarterly estimates display robust strength. For the quarter, the company is expected to rake in $13.6 billion, notching a massive 91% increase in the top-line from the year-ago quarter.

Pivoting to the bottom-line, the $1.68 per share Zacks Consensus Estimate registers a jaw-dropping triple-digit increase in quarterly earnings of more than 250% from the year-ago quarter. Over the last 60 days, eight analysts have positively revised their quarterly estimates with a 100% revision agreement.

Zacks Investment Research
Zacks Investment Research

Image Source: Zacks Investment Research

Bottom Line

Upon the re-opening of the world, Delta Air Lines can finally capitalize on huge pent-up demand within the travel industry. Additionally, shares reside at solid valuation levels, and the company has an overall VGM Score of an A.

For these reasons, I’m optimistic heading into the quarterly report. However, as mentioned before, the market has not always reacted positively to EPS beats. Additionally, with soaring energy costs, the company has undoubtedly experienced margin compression – a development that no investor can ignore.

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