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Should Investors Avoid Delta (DAL) Ahead of Earnings?

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Shares of Delta Air Lines (DAL - Free Report) dipped on Friday after the company announced that hundreds of thousands of customers might have had their credit card information compromised as part of a cyberattack. This isn’t good news for investors or Delta as the airline approaches the release of its first quarter 2018 earnings results.

Delta said on Thursday that hundreds of thousands of customers’ credit cards could have been hacked via a vendor that operated a chat feature on Delta’s website. In the wake of this breach, investors need to be even more cautious about Delta, as any data-driven selloff, coupled with the current market-wide volatility, could spell trouble.

With that said, one of the best ways for investors to elude the possibility of continued volatility would be to avoid Delta if the company is also likely to underperform its earnings estimates.

Our current Zacks Consensus Estimates are calling for Delta’s Q1 earnings to sink by 5.2% to hit $0.73 per share. Delta has also experienced a few downward earnings estimate revisions recently.

But this still doesn’t tell investors if Delta is expected to fall short of this earnings estimate. Luckily, Zacks Premium customers can utilize the Earnings ESP Screener in order to search for stocks that are expected to surprise, in one way or the other.

This is done because, generally speaking, when an analyst posts an estimate right before an earnings release, it means that they have fresh information which could potentially be more accurate than what analysts thought about a company two or three months ago.

A positive Earnings ESP paired with a Zacks Rank #3 (Hold) or better ranking helps us feel confident about the potential for an earnings beat. In fact, our 10-year backtest has revealed that this methodology has accurately produced a positive surprise 70% of the time.

In contrast, a stock with a Zacks Rank #3 (Hold) or worse, coupled with a negative Earnings ESP, is one that we typically want to avoid during earnings season.

Delta is currently a Zacks Rank #3 (Hold) and is projected to see its revenues climb by 7.3% to $9.82 billion. However, the airline giant also currently sports an Earnings ESP of -0.88%. This means that Delta might be a stock investors should avoid ahead of earnings.

Delta is set to report its first quarter 2018 earnings results before the market opens on Thursday, April 12.

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