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What's in the Offing for Delta (DAL) This Earnings Season?

Delta Air Lines DAL is scheduled to report fourth-quarter 2020 results on Jan 14, before the market opens.

The company’s earnings beat the Zacks Consensus Estimate in two of the last four quarters, while missing the same in the other two. It has a trailing four-quarter earnings surprise of 8.48%, on average.

Notably, the Zacks Consensus Estimate for fourth-quarter bottom line widened to a loss of $2.36 per share from a loss of $2.12 per share 60 days ago.

Against this backdrop, let’s discuss the factors that might have impacted Delta’s performance in the December quarter.

Delta Air Lines, Inc. Price and EPS Surprise

 

Delta Air Lines, Inc. price-eps-surprise | Delta Air Lines, Inc. Quote

 

Akin to the third quarter, Delta’s fourth-quarter performance is likely to have been dented by coronavirus-induced weak passenger revenues as air-travel demand continues to be tepid. The Zacks Consensus Estimate for passenger revenues in the to-be-reported quarter indicates a 70.4% plunge from the number reported in the year-ago quarter.

To mitigate the extreme demand depression, the carrier is trimming its capacity. The Zacks Consensus Estimate for consolidated available seat miles (a measure of capacity) implies 46.4% slump from the number reported in the year-earlier quarter. However, the Zacks Consensus Estimate for traffic (measured in revenue passenger miles) suggests 66.6% decline from the prior-year quarter’s reported figure.

With traffic declining at a faster rate than capacity cutbacks, load factor (% of seats filled by passengers) is likely to have tanked in the fourth quarter. The Zacks Consensus Estimate for Delta’s fourth-quarter 2020 consolidated passenger load factor stands at a dismal 51%, hinting at a decline from 86% reported in fourth-quarter 2019. The Zacks Consensus Estimate for fourth-quarter passenger revenues per available seat miles (PRASM: a key measure of unit revenues) is pegged at 8.65 cents, indicating a 44.7% decline from the figure reported in the year-ago quarter.

Against this backdrop, low fuel prices are likely to have had a positive impact on Delta’s bottom line. Notably, the Zacks Consensus Estimate for average fuel price per gallon (adjusted) suggests a 35.2% drop from the figure reported in the December quarter of 2019. Moreover, the Zacks Consensus Estimate for fuel gallons consumed (on a consolidated basis) indicates a 49.2% reduction from the figure reported in the year-ago quarter.

What Does the Zacks Model Unveil?

The proven Zacks model does not predict a bottom-line beat for Delta this time around. Notably, the combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of a positive earnings surprise as elaborated below. However, this is not the case here as elaborated below. You can see the complete list of today’s Zacks #1 Rank stocks here.

Earnings ESP: Delta has an Earnings ESP of -12.93%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Delta carries a Zacks Rank #3, currently.

Highlights of Q3

In the last reported quarter, the company incurred a loss (excluding $5.17 from non-recurring items) of $3.30 per share in the September quarter, wider than the Zacks Consensus Estimate of a loss of $3.14. Meanwhile, Delta reported earnings of $2.32 per share (on an adjusted basis) in the year-ago quarter, driven by high passenger revenues as air-travel demand was buoyant at that time.

Stocks to Consider

Investors interested in the broader Transportation sector may consider Canadian Pacific Railway Limited CP, CSX Corporation CSX and Union Pacific Corporation UNP as these stocks possess the right combination of elements to beat estimates this reporting cycle.

Canadian Pacific has an Earnings ESP of +0.16% and is Zacks #3 Ranked, presently. The company will release fourth-quarter 2020 results on Jan 27.

CSX has an Earnings ESP of +2.23% and a Zacks Rank of 3 at present. The company will release fourth-quarter 2020 results on Jan 21.

Union Pacific has an Earnings ESP of +1.46% and is currently a #3 Ranked player. The company will release fourth-quarter 2020 results on Jan 21.

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Union Pacific Corporation (UNP): Free Stock Analysis Report
 
CSX Corporation (CSX): Free Stock Analysis Report
 
Delta Air Lines, Inc. (DAL): Free Stock Analysis Report
 
Canadian Pacific Railway Limited (CP): Free Stock Analysis Report
 
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