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Delta Air Lines (DAL) Up 6.9% Since Earnings Report: Can It Continue?

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A month has gone by since the last earnings report for Delta Air Lines, Inc. (DAL - Free Report) . Shares have added about 6.9% in that time frame, outperforming the market.

Will the recent positive trend continue leading up to the stock's next earnings release, or is it due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Delta Air Lines Lags Q2 Earnings Despite PRASM Growth

Delta Air Lines kick-started the second-quarter earnings season in the airline space on a disappointing note. The company’s earnings as well as revenues lagged expectations. Also, the top- and bottom-line miss disappointed investors. Consequently, shares of the company were down in early trading.

The Atlanta, GA-based carrier’s second-quarter earnings (excluding special items) of $1.64 per share missed the Zacks Consensus Estimate of $1.66.

However, earnings climbed 11.56% on a year-over-year basis on the back of a 3.3% operating revenue growth. Meanwhile, quarterly operating revenues of $10.79 billion fell short of the Zacks Consensus Estimate.

During the quarter, passenger revenues, cargo revenues and others increased 2.9%, 10.9% and 4.9%, respectively, on a year-over-year basis. Average fuel price (adjusted) was down 15.7% to $1.66 per gallon.

Operating Statistics

Revenue passenger miles (a measure of air traffic) increased 2.1% to approximately 57.6 billion. Capacity or available seat miles expanded 0.4% to 66.2 billion. Load factor (percentage of seats filled by passengers) improved 140 basis points year over year to 86.9% as traffic growth outpaced capacity expansion in the quarter, leading to packed planes.

Passenger revenue per available seat mile (PRASM) climbed 2.5% year over year. In fact, this was the first quarter in which the carrier recorded quarterly unit revenue growth since the fourth quarter of 2014. In addition, passenger mile yield grew 0.8%.

Operating Expenses

Total operating expenses, including special items, increased 9% year over year to $8,763 million. Non-fuel consolidated unit cost or cost per available seat mile (CASM: normalized), including profit sharing, climbed 5.5%, mainly owing to wage increases, product investments and the operational disruption in April.

Liquidity

At the end of the second quarter, Delta had $2.24 billion in cash and cash equivalents and adjusted net debt of $8.4 billion. The carrier generated $2.8 billion of adjusted operating cash flow and $1.9 billion in free cash flow in the quarter.

Dividend and Share Repurchase

Delta returned $748 million to its shareholders through dividends ($148 million) and share buybacks ($600 million) in the quarter under review. In fact, we are impressed with the company’s efforts to return greater value to its investors.

In May 2017, the company’s board of directors approved a new share repurchase program worth $5 billion. The new share buyback plan is expected to be completed by Jun 2020. Simultaneously, the airline major increased its quarterly dividend by over 50%.

Third-Quarter Guidance

The carrier expects operating margin in the range of 18% to 20%. The estimated fuel price, including taxes and refinery impact, is anticipated in the band of $1.55 to $1.60 per gallon for the third quarter. System capacity is projected to be up approximately 2% on a year-over-year basis.

Moreover, the company expects passenger unit revenue to increase in the band of 2.5% to 4.5% (on a year-over-year basis) in the third quarter. Non-fuel unit cost (including profit sharing) is anticipated to increase approximately 4% in the quarter.

How Have Estimates Been Moving Since Then?

Following the release, investors have witnessed an upward trend in fresh estimates. There have been five revisions higher and two lower for the current quarter.

Delta Air Lines, Inc. Price and Consensus

 

Delta Air Lines, Inc. Price and Consensus | Delta Air Lines, Inc. Quote

VGM Scores

At this time, the stock has an average Growth Score of 'C', however its Momentum is lagging a lot with a 'F'. The stock was allocated a grade of 'A' on the value side, putting it in the top quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of 'B'. If you aren't focused on one strategy, this score is the one you should be interested in.

Based on our scores, the stock is more suitable for value investors than growth investors.

Outlook

Estimates have been trending upward for the stock. The magnitude of these revisions also looks promising. It comes with little surprise that the stock sports a Zacks Rank #1 (Strong Buy). We are expecting an above average return from the stock in the next few months.




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