Delta Kicks Off Earnings Season for Airlines on Thursday. It Could Be Worse Than You Think.
Wall Street is expecting Delta to report steep losses and a weak outlook for the first quarter.
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Airline earnings kick off on Thursday with Delta Air Lines scheduled to report fourth-quarter results before the market opens.
Wall Street is expecting steep losses and a weak outlook for the first quarter. But the stock is likely to move on Delta’s (ticker: DAL) progress in returning to profitability and possible forecasts for spring travel—when the pandemic is expected to be less severe.
Like most passenger carriers, Delta isn’t close to turning a profit. The full-service network airline is expected to report sales of $3.7 billion, down 67% from a year earlier, according to consensus estimates. Wall Street expects Delta to report a $2 billion pretax loss, resulting in a loss of $2.50 per share.
Yet its sequential progress is likely to move the stock. Delta’s $2 billion loss would be an improvement over its $2.5 billion loss in the third quarter—a sign that it’s on track to turning profitable later in the year. Wall Street expects the carrier to post another $855 million loss in the first quarter but sees an inflection point in the spring, with pretax income turning positive.
Delta CEO Ed Bastian told Barron’s in November that’s he’s upbeat on a recovery later in 2021. But he cautioned last month that the airline was seeing demand and booking trends weaken due to rising new Covid-19 cases. He said the carrier expected to operate at just 30% of its 2019 capacity in the fourth quarter, though he added that the airline was still on track to break even on cash flow this spring.
That may prove tougher now that coronavirus cases have surged above an average 200,000 a day in the U.S., while vaccine rollouts remain well behind initial estimates. Only 9 million doses have been administered out of 25.5 million distributed, according to the Centers for Disease Control and Prevention. The pace is expected to pick up in the weeks ahead, but countries in Europe and elsewhere continue to impose strict air-travel restrictions and quarantine requirements, keeping a lid on business and international travel.
But there may be some bright spots that could help Delta edge forecasts. The carrier added cargo flights in the fourth quarter and could show strength in its co-branded credit-card program, helping top-line results. Analysts will also home in on Delta’s expense controls, liquidity, and cash-burn rate, which should continue to narrow.
Citigroup analyst Stephen Trent maintained a Buy rating on the stock this week. He expects the company to report stabilizing revenue trends and “sound cost controls,” resulting in a loss of $2.20 per share, beating consensus estimates. While the loss will be steep, he acknowledges, “the market seems more likely to focus on Delta’s set-up into a mid-year recovery scenario.”
Trent has a $48 price target on the stock, based on a multiple of 10 estimated 2022 earnings. That would imply gains of 20% from recent prices.
Other analysts aren’t so upbeat. Bank of America’s Andrew Didora maintained a Neutral rating on the stock, with a $42 target, last week. Investors should focus more on domestic, leisure-oriented carriers that are likely to capture more revenue in an recovery scenario, he writes, including Southwest Airlines (LUV), Alaska Air Group (ALK), and JetBlue Airways (JBLU).
Cowen’s Helane Becker downgraded Delta to a Market Perform rating, with a $44 price target, this week. She sees “limited upside” without business travel recovering and views the company’s timeline to turn cash-flow positive as aggressive.
Delta stock closed up 2.3%, at $40.30, on Tuesday. The S&P 500 was up 0.04%.
Write to Daren Fonda at [email protected]
