Delta Airlines (NYSE: DAL) is scheduled to report its fourth-quarter earnings for Fiscal Year 2021 before markets open on Thursday.
DAL stock investors will be eager to see how the airliner performed during the past three months following management guidance which predicted very good passenger volume recovery in November and December of 2021.
I’m currently neutral on DAL stock.
Market Expectations
The global airline industry has yet to fully recover from a COVID-19-induced slump. The year 2019 is still the critical pre-pandemic period against which recovery progress and comparisons for airline companies are benchmarked.
During its third-quarter earnings update on October 13, 2021, Delta gave revenue guidance for 75% of comparable 2019 revenue for the fourth quarter. Revenue for Q4 2019 was $10.43 billion.
The year 2021 has seen a strong recovery for Delta Airlines’s business volumes as revenue improved by 199% from $3.06 billion during the third quarter of 2020 to $9.15 billion during the third quarter of 2021.
Compared to the third quarter of 2019, Q3 2021 revenue was 27% weaker. However, the sequential growth seen over the past three quarters is encouraging for DAL stock.
Wall Street analysts predict that Delta’s fourth-quarter revenue should be around $9.3 billion. If achieved, that number implies 134% year-over-year growth.
Analysts’ consensus earnings per share (EPS) forecasts for DAL stock for the fourth quarter stood at $0.13 at the time of writing. This implies a potential 105% growth from the previous year’s comparable quarterly loss of $2.53 per share.
Delta’s management guided for a modest loss in the fourth quarter due to a rise in fuel prices.
The company predicts a significant recovery to happen in 2022, and expects that momentum to continue to 2024 where revenue will be around $50 billion, a level even higher than 2019.
A Return to Form?
During the pre-pandemic period, Delta was a consistent outperformer after beating analyst EPS forecasts for nine consecutive quarters between the fourth quarter of 2017 and the final quarter of 2019.
The pandemic brought a lot of uncertainty for the airline industry to such an extent that the company missed analyst expectations for five consecutive quarters starting with the first quarter of 2020.
However, in a potential return to market-beating performance, Delta Airlines has already beaten market expectations during the two most recent quarterly earnings releases as business conditions improved.
What’s Driving Delta’s Quick Revenue Growth?
Delta recently introduced a premium product; the Delta Premium Select that’s strongly driving its strong top-line recovery.
During the third quarter, premium revenue in domestic and short-haul flights outperformed the main cabin by approximately 10 points, as paid load factors in Comfort+ and first-class cabins exceeded 2019 levels.
It remains to be seen whether customer tastes have evolved towards a preference for premium cabin experiences. Perhaps it’s the general inclination towards “social distancing” that led to ballooning demand for premium cabin classes in 2021.
Recent Developments
Flight cancellations have been a hot issue. Over 12,000 flights were reportedly cancelled within a week from Christmas 2021 due to increased cases of COVID-19 and bad weather.
Delta Airlines has not been spared from flight cancellations, of course. DAL stock investors will be eager to get an update on how cancellations have impacted the business lately.
That said, if it comes to pass, the encouraging update on December 29 from the World Health Organization (WHO) predicting that 2022 could mark the end of the acute stage of the COVID-19 pandemic is something to be happy about for almost all businesses, especially airlines.
Before then, there is the Omicron variant to battle with. Just recently, the United States has warned against travel to its neighbor and big trading partner Canada.
Wall Street’s Take
Turning to Wall Street, Delta Airlines stock earns a Strong Buy rating based on 11 Buys and three Holds assigned during the past three months.
The average DAL stock price target of $53.31 implies 29.1% upside potential over the next 12 months.
Investor Takeaway
DAL stock could pop a little if the airliner beats on revenue and earnings in the upcoming quarterly financial report.
However, the narrative in management’s discussion of the financial results could be key in determining trading direction post Thursday’s earnings instalment. More so as the Omicron variant continues to ravage the global population.
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