Delta Airlines Q4 Pre-Earnings : Expect Earnings To Outperform, Stock May Be Oversold

by Trefis Team
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DAL
Delta Air Lines
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Delta Air Lines (NYSE: DAL) reports earnings on the 10th of January. We expect earnings to be relatively robust despite the pre-announcement, where Delta guided investors lower, recently. They also mentioned for 2019 they expect average oil prices to be in the range of $65-70, with pre-tax margins expanding by 100 bps. They also expect the passenger revenue to rise around 5%. With this, Delta Airlines, could see a pop as earnings come in, with the recent stock decline showing signs of being oversold.  Delta has great cash flows and is expected to produce $3.5 billion in FCF over the next year, and they expect to return $2.5 billion of that to shareholders. With the stock trading at 10x cash flow, this points to the decline perhaps being higher than it should.

Our price estimate for Delta is $55 per share, which is higher than its market price. View our interactive dashboard for Delta 2018 Q4 Pre-Earnings and modify the key drivers to visualize the impact on the company’s price estimate.

We expect EPS for the quarter to come in at $1.28 and earnings TTM to be around $5.

 

Delta has been a top performer with one of the most efficient and customer friendly operations in the industry. In addition to their efficiency Delta has relatively lower levels of leverage. All of this bodes well going forward as airlines look to replace their fleet. Furthermore, Delta has been improving routes and focusing on high-value routes. We expect the improved routes to start paying dividends in the quarter. Delta has therefore guided passenger revenue per average seat mile (PRASM), to be up by 3.5% in the coming quarters. We expect that it might be slightly higher with increased earnings coming in from premium class passengers,  Delta has been targeting  premium class passengers as a way to improve its cash flows . This should help weather any volatility in oil prices, during the coming quarters.

 

With steady consumer confidence, strong wage growth, and increased passenger flow from the holiday season, Delta is well positioned going into earnings. Overall we expect a robust quarter and this should translate into improved earnings. Despite the recent weakness, the stock may benefit as negative sentiment subsides post-earnings.

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