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Will Delta (DAL) Retain its Beat Streak in Q4 Earnings?

Zacks Equity Research

Delta Air Lines, Inc. DAL is scheduled to report fourth-quarter 2018 results on Jan 15, before the market opens.

The company delivered a positive earnings surprise in the last reported quarter. In fact, it boasts an impressive earnings history, surpassing the Zacks Consensus Estimate in each of the trailing four quarters, the average being 4.2%.

Things seem to be looking up for the company this soon-to-be-reported quarter as well with the Zacks Consensus Estimate for fourth-quarter earnings being revised 2.5% upward over the last 60 days.

Why a Likely Positive Surprise?

Our proven model shows that Delta is likely to beat on earnings in the fourth quarter of 2018 as well because it has the perfect combination of the following two key ingredients.

Earnings ESP: Delta has an Earnings ESP of +1.26%, representing the difference between the Most Accurate Estimate (poised at $1.27 cents per share) and the Zacks Consensus Estimate (pegged lower at $1.25). You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Delta currently carries a Zacks Rank #3 (Hold). Note that the stocks with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 have a significantly higher chance of beating estimates.

Conversely, the Sell-rated stocks (#4 or 5) should never be considered going into an earnings announcement, especially when the company is witnessing negative estimate revisions.

Thus, the above combination makes us reasonably confident of a likely earnings surprise in the impending reporting cycle.

Delta Air Lines, Inc. Price and EPS Surprise

 

Delta Air Lines, Inc. Price and EPS Surprise | Delta Air Lines, Inc. Quote


Factors Likely at Play

The current law, which cuts the corporate tax rate significantly, is anticipated to aid Delta’s bottom-line growth in the fourth quarter. Notably, the carrier expects earnings per share between $1.25 and $1.30 in the period to be reported, much higher than 96 cents in the fourth quarter of 2017.

Additionally, high passenger revenues owing to solid demand for air travel are anticipated to boost the company’s top line. Delta expects total revenues to grow approximately 7% excluding third-party refinery sales in the quarter. The Zacks Consensus Estimate for revenue growth is pegged at 5.7%. Additionally, the pre-tax margin is predicted between 10% and 11%.

Moreover, total revenue per available seat mile (TRASM: a key measure of unit revenue) is envisioned to increase approximately 3% on a year-over-year basis. The Zacks Consensus Estimate for fourth-quarter TRASM stands at 17.22 cents compared with 16.40 reported in the third quarter of 2018. Notably, the company has been reporting a healthy TRASM growth over the past few quarters.

On another positive note, non-fuel unit costs are likely to slip approximately 0.5% in the to-be-reported quarter. This is another catalyst for bottom-line growth.

However, high fuel expenses might partly offset earnings growth in the quarter. Fuel prices, although at a low level since the past few months, is still much higher when compared with the year-ago figure. The company forecasts fourth-quarter fuel cost per gallon in the range of $2.38-$2.43, much higher than $1.93 in the year-ago period.

Other Stocks to Consider

Investors interested in the broader Transportation sector may also consider American Airlines Group, Inc. AAL, ArcBest Corporation ARCB and JetBlue Airways Corporation JBLU as these stocks too possess the right mix of elements to beat on earnings in the next releases.

American Airlines has an Earnings ESP of +6.73% and a Zacks Rank of 2. The company is expected to release fourth-quarter earnings on Jan 24.

ArcBest has an Earnings ESP of +0.14% and a Zacks Rank of 1. The company will report its fourth-quarter financial numbers on Jan 30. You can see the complete list of today’s Zacks #1 Rank stocks here.

JetBlue has an Earnings ESP of +2.86% and is a Zacks #2 Ranked stock. The company is expected to announce fourth-quarter results on Jan 24.

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