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Will Delta (DAL) Retain Its Beat Streak in Q3 Earnings?

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Delta Air Lines, Inc. (DAL - Free Report) is scheduled to report third-quarter 2019 results on Oct 10, before the market opens.

The company delivered a positive earnings surprise of 2.6% in the last reported quarter. Operating revenues also topped the Zacks Consensus Estimate. Moreover, the top and the bottom line improved substantially year over year. Notably, the company boasts an impressive earnings history, having outperformed the Zacks Consensus Estimate in each of the trailing four quarters, the average being 3.8%.

Delta is most likely to repeat history in the third quarter as well with the Zacks Consensus Estimate for earnings being revised 9.1% upward in the past 90 days.

Why a Likely Positive Surprise?

The proven Zacks model shows that Delta is likely to beat on earnings in the third quarter of 2019 as well because it has the perfect combination of the following two key ingredients.

Earnings ESP: Delta has an Earnings ESP of +0.49%, representing the percentage difference between the Most Accurate Estimate ($2.29) and the Zacks Consensus Estimate (pegged lower at $2.28). You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Delta currently carries a Zacks Rank #3 (Hold). Notably, stocks with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 when combined with a positive earnings ESP have significantly higher chances of beating estimates.

Thus, the above combination of a favourable ESP and a top Zacks Rank makes us reasonably confident of a likely positive surprise in the impending quarterly results.

Conversely, the Sell-rated stocks (#4 or 5) should never be considered going into an earnings announcement, especially when the company is witnessing negative estimate revisions.

Delta Air Lines, Inc. Price and EPS Surprise


Delta Air Lines, Inc. Price and EPS Surprise

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

Factors Likely at Play

Solid demand for Delta’s services is anticipated to boost passenger revenues in the third quarter. Notably, the Zacks Consensus Estimate for passenger revenues stands at $11,426 million, indicating a rise from $10,796 million reported in the year-ago period. On the back of robust passenger revenues, the carrier anticipates its top line to augment nearly 6.5% year over year in the quarter to be reported.

Total unit revenues (total revenue per available seat mile or TRASM) are also expected to show a substantial improvement in the quarter. The airline predicts TRASM to rise 2.5% year over year in the period. The consensus mark for TRASM is pegged at 16.69 cents, suggesting an increase from 16.40 cents reported in the third quarter of 2018.

With fuel comprising a major chunk of airline expenditures, modest fuel prices should aid the company’s bottom line. Average fuel price per gallon (adjusted) for the third quarter is projected in the band of $1.95-$2.05, compared with $2.08 reported in the second quarter. Given that fuel prices have mostly been at low levels since the beginning of this year, the likely sequential decline in fuel costs is encouraging. In the year-ago period, average fuel costs were $2.22 per gallon.

Evidently, the company’s earnings are estimated to ascend nearly 25% year over year to $2.20-$2.30 per share in the third quarter. Further, pre-tax margin (adjusted) is envisioned to climb approximately 175 basis points year over year to 15.5%. Additionally, the company is expected to generate free cash flow of more than $1 billion in the September quarter.  

However, the company’s bottom line might partly be affected by the rising non-fuel unit costs (CASM-Ex). Rising passenger numbers, high labor costs and weather-related adversities put pressure on its CASM-Ex. As a result, Delta predicts non-fuel unit costs to increase approximately 2.5% in the quarter. The consensus mark for the same stands at 9.8 cents, above 9.62 cents reported in the year-ago period.

Other Stocks to Consider

Investors interested in the airline space may also consider Alaska Air Group, Inc.  (ALK - Free Report) , United Airlines Holdings Inc (UAL - Free Report) and Southwest Airlines Co. (LUV - Free Report) as these stocks too possess the right mix of elements to beat on earnings in their next releases.

Alaska Air Group has an Earnings ESP of +0.50% and a Zacks Rank of 3. The company will report third-quarter 2019 results on Oct 24. You can see the complete list of today’s Zacks #1 Rank stocks here.

United Airlines is also a #3 Ranked company and has an Earnings ESP of +1.64%. The company will announce third-quarter earnings results on Oct 15.

Southwest Airlines is Zacks #3 Ranked and has an Earnings ESP of +0.22%. The company will release third-quarter financial numbers on Oct 24.

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