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Can Delta's (DAL) Q2 Earnings Beat on Strong Travel Demand?

Zacks Equity Research

Delta Air Lines, Inc. DAL is scheduled to report second-quarter 2019 results on Jul 11, before the market opens.

The company delivered a positive earnings surprise of 6.7% in the last reported quarter. Operating revenues also topped the Zacks Consensus Estimate. Moreover, the top and the bottom lines improved substantially year over year. Notably, the company boasts an impressive earnings history, having outperformed the Zacks Consensus Estimate in each of the trailing four quarters, the average being 3.8%.

Delta is likely to repeat its success story in the second quarter as well with the Zacks Consensus Estimate for earnings being revised 1.9% upward in the last 90 days.

Why a Likely Positive Surprise?

The proven Zacks model shows that Delta is likely to beat on earnings in the second quarter of 2019 as well because it has the perfect combination of the following two key ingredients.

Earnings ESP: Delta has an Earnings ESP of +3.60%, representing the percentage difference between the Most Accurate Estimate (poised at $2.27) and the Zacks Consensus Estimate (pegged lower at $2.19). 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). Notably, stocks with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 have significantly higher chances 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 positive 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. price-eps-surprise | Delta Air Lines, Inc. Quote

Factors Likely at Play

Strong demand for Delta’s services should boost unit revenues in the quarter and its top line in turn. The company anticipates total unit revenues to increase approximately 3.5% year over year in the second quarter. The Zacks Consensus Estimate for the same stands at 17.33 cents compared with 16.78 cents reported in the previous quarter. Moreover, the top line is projected to expand 8-8.5% (adjusted) year over year.

Akin to the last few quarters, robust passenger revenues should strengthen the company’s bottom line in the second quarter. Notably, earnings per share are forecast in the band of $2.25-$2.35 in the to-be-reported quarter, indicating a surge of more than 25% from the year-ago reported figure.

Further, the pre-tax margin is predicted between 15% and 16% in the soon-to-be-reported quarter. This represents a 100-basis point improvement from the prior-year reported number. Also, the carrier expects to generate free cash flow of more than $1.5 billion in the period.

However, high operating expenses might partly offset earnings growth in the quarter. While non-fuel unit costs are estimated to inch up 1-2% in the quarter to be reported, fuel prices are anticipated in the band of $2.07-$2.12, higher than $2.05 reported in first-quarter 2019.

Other Stocks to Consider

Investors interested in the broader Transportation sector may also consider Alaska Air Group, Inc.  ALK, CSX Corporation CSX and Canadian Pacific Railway Limited CP as these stocks too possess the right mix of elements to beat on earnings in their next releases.

Alaska Air Group has an Earnings ESP of +1.50% and a Zacks Rank of 3. The company will report second-quarter 2019 results on Jul 25.

CSX is also a Zacks #3 Ranked company and has an Earnings ESP of +0.33%. The company will release second-quarter financial results on Jul 16.

Canadian Pacific has an Earnings ESP of +1.62% and a Zacks Rank #2. This company is scheduled to announce second-quarter financial numbers on Jul 16. You can see the complete list of today’s Zacks #1 Rank stocks here.

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