Shares of Delta Air Lines (DAL - Free Report) have sunk roughly 8% over the last month in a sign that investors might not expect good things from the U.S. airline company’s second quarter financial results, especially with fuel costs on the rise. But let’s take a look at what they should really expect from Delta on Thursday and see if DAL might be worth buying.
Delta announced last week that it flew a record number of passengers during the month of June, noting that it carried 17.7 million customers across its global network, which marked a roughly 3% climb from the year-ago period. Year to date, Delta has boarded a total of 93.3 million passengers, up 2.5%. Meanwhile, the company’s revenue passenger miles also climbed 3%.
Closing the quarter on a strong note should be good news for investors. Coupled with the fact that United (UAL - Free Report) also reported record-breaking passenger totals last month at 15.2 million, it could signal that airline companies are set for a strong second quarter. But there are concerns that higher fuel costs will hurt the industry’s bottom line.
The fear is that Delta, United, American (AAL - Free Report) , Southwest (LUV - Free Report) , and other airlines won’t be able to raise their prices quickly enough to make up for the roughly 55% increase in fuel costs from a year ago.
With that said, Delta reaffirmed its Q2 earnings guidance of $1.65 per share to $1.75 per share last week. “We’ve made money at fuel prices at $100 and we’ve made money at $40,” Delta CEO Ed Bastian said recently at the National Press Club in Washington. “There’s a resiliency and a stability to our business like never before.”
So now let’s look to see what investors should expect from Delta when it reports its Q2 results before the market opens on Thursday, kicking off a wave airline giant’s quarterly earnings releases.
Our current Zacks Consensus Estimates are calling for Delta’s quarterly revenues to climb by 8.23% to hit $11.68 billion. Meanwhile, its quarterly earnings are projected to pop by 6.71% to reach $1.75 per share.
Investors should note that DAL’s Most Accurate Estimate—the representation of the most recent analyst sentiment—is calling for earnings of $1.76 per share, which is 1 cent above our current consensus estimate.
Delta has also topped earnings estimates in five out of the last six quarters. We judge the price effect of these earnings beats by comparing the closing price of the stock two days before the report and two days after the report, and DAL stock climbed 2.8% last quarter and 7.1% in the fourth quarter following its quarterly earnings release.
Price Movement/ Valuation
Moving on, investors should want to understand how Delta stock has performed. Shares of DAL have climbed 32% over the last two years, just outpacing the S&P 500’s climb. However, Delta stock is down 7.3% over the last year and has sunk 14% during the last six months. This is good news for investors if they are considering buying DAL stock since it currently sits roughly $10 below its 52-week high of $60.79 per share, and could easily climb if the company posts strong results or guidance.
Delta’s recent performance has helped its valuation picture look a bit more attractive at the moment. DAL is currently trading at 8.1X forward 12-month Zacks Consensus EPS estimates, which marks a significant discount compared to the S&P 500’s 17.2X and its industry’s average of 9.8X.
For further reference, DAL stock has traded as high as 11.6X over the last year, with a one-year median of 8.6X and currently sits near its year-long low of 7.8X. It is also currently trading below its five-year median of 9X.
Delta is currently a Zacks Rank #3 (Hold) and sports a “B” grade for Value in our Style Scores system and an overall “A” VGM grade. The company is also expected to see both its top and bottom lines expand at relatively solid rates for a company of its age and size.
DAL has also seen its shares climb directly following its earnings release in the trailing two periods, which means it might be a stock worth considering before the opening bell on Thursday.
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