Will Q3 Earnings Trigger A Rally In Delta Air Lines Stock?

DAL: Delta Air Lines logo
Delta Air Lines

[Updated 10/11/2021]

As new infections continue to decline, travel and entertainment stocks are receiving a green light from investors. The shares of Delta Air Lines (NYSE: DAL) have gained 7% the past month and Trefis believes that there is room for more. Domestic air travel demand continues to remain strong as indicated by passenger numbers at TSA checkpoints, which are 18-20% below 2019 levels. The company expects Q3 2021 revenues to be 30% below Q3 2019 with a similar decline in capacity. Top-line growth along with payroll support proceeds will subsequently assist in margin expansion and improved cash flows. Notably, Delta Air Lines observed $3.7 billion of operating cash outflow last year and the $7 billion drop in the stock’s market capitalization indicates an opportunity for capital gains. Trefis highlights the quarterly trends in revenues, earnings, stock price, and expectations for Q3 2021 in an interactive dashboard analysis, Delta Air Lines Earnings Preview.

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[Updated 09/16/2021] – Is Delta Air Lines Stock Poised To Outperform Broader Markets?

The shares of Delta Air Lines (NYSE: DAL) have trended downward due to fears of low air travel demand in the fourth quarter. The fourth wave of the pandemic has caused near-term uncertainty for the travel & tourism industry, but long-term trends look favorable. Moreover, the third round of payroll support is assisting employee salaries through September 30 – limiting operating losses even during the fourth wave. Notably, passenger numbers at TSA checkpoints have also not observed a sharp decline – pinning hopes of strong air travel demand as infections decline.

According to the Trefis Machine Learning Engine, which identifies trends in a company’s historical stock price data, Delta Air Lines stock will likely gain 3.7% over the next one month (twenty-one trading days) considering the 2.3% drop in the past week (five trading days).

But how would these numbers change if you are interested in holding Delta Air Lines stock for a shorter or a longer time period? You can test the answer and many other combinations on the Trefis Machine Learning Engine to test Delta Air Lines stock chances of a rise after a fall. You can test the chance of recovery over different time intervals of a quarter, month, or even just one day!

MACHINE LEARNING ENGINE – try it yourself:

IF DAL stock moved by -5% over five trading days, THEN over the next twenty-one trading days, DAL stock moves an average of 4.2 percent, with a 62.8% probability of a positive return over this period.

Also, given a -5% movement for the stock over five trading days, it has historically witnessed an excess return of 1.4% compared to the S&P500 over the next 21 trading days, with a 56.1% percent probability of a positive excess return.

Some Fun Scenarios, FAQs & Making Sense of Delta Air Lines Stock Movements:

Question 1: Is the average return for Delta Air Lines stock higher after a drop?

Answer: Consider two situations,

Case 1: Delta Air Lines stock drops by -5% or more in a week

Case 2: Delta Air Lines stock rises by 5% or more in a week

Is the average return for Delta Air Lines stock higher over the subsequent month after Case 1 or Case 2?

DAL stock fares better after Case 1, with an average return of 4.2% over the next month (21 trading days) under Case 1 (where the stock has just suffered a 5% loss over the previous week), versus, an average return of 2.1% for Case 2.

In comparison, the S&P 500 has an average return of 3.1% over the next 21 trading days under Case 1, and an average return of just 0.5% for Case 2 as detailed in our dashboard that details the average return for the S&P 500 after a fall or rise.

Try the Trefis machine learning engine above to see for yourself how Delta Air Lines stock is likely to behave after any specific gain or loss over a period.

Question 2: Does patience pay?

Answer: If you buy and hold Delta Air Lines stock, the expectation is over time the near-term fluctuations will cancel out, and the long-term positive trend will favor you – at least if the company is otherwise strong.

Overall, according to data and Trefis machine learning engine’s calculations, patience absolutely pays for most stocks!

For DAL stock, the returns over the next N days after a -5% change over the last five trading days is detailed in the table below, along with the returns for the S&P500:

You can try the engine to see what this table looks like for Delta Air Lines after a larger loss over the last week, month, or quarter.

Question 3: What about the average return after a rise if you wait for a while?

Answer: The average return after a rise is understandably lower than after a fall as detailed in the previous question. Interestingly, though, if a stock has gained over the last few days, you would do better to avoid short-term bets for most stocks – although DAL stock appears to be an exception to this general observation.

DAL’s returns over the next N days after a 5% change over the last five trading days is detailed in the table below, along with the returns for the S&P500:

It’s pretty powerful to test the trend for yourself for Delta Air Lines stock by changing the inputs in the charts above.

What if you’re looking for a more balanced portfolio instead? Here’s a high-quality portfolio that’s beaten the market consistently since 2016.

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