Can Delta (DAL) Stock Spring a Surprise in Q1 Earnings?
Delta Air Lines, Inc. DAL is scheduled to report first-quarter 2018 results on Apr 12, before the market opens.
Last quarter, the carrier delivered a positive earnings surprise of 9.1%. Moreover, it has an impressive earnings history, having outperformed the Zacks Consensus Estimate in three of the trailing four quarters with an average beat of 3.8%.
Let’s see how things are shaping up for this earnings season.
Factors Likely at Play
Delta is expected to perform well on the unit revenue front. Evidently, the carrier now expects total revenue per available seat mile (TRASM) to increase approximately 5%, i.e, in the high end of its previously guided range of a rise between 4% and 5%. This upside has been driven by strong demand and higher yields.
The Zacks Consensus Estimate for first-quarter passenger revenue per available seat mile (PRASM) is pegged at 13.76 cents, better than 13.28 cents reported a year ago.
The new tax law, which reduced corporate tax rate significantly, is also anticipated to boost earnings in the first quarter. Notably, the company estimates its bottom line per share between 65 cents and 75 cents. Additionally, the carrier’s tax rate is projected at around 23% for the first quarter while pre-tax margin is likely to increase between 6.5% and 7.5%.
However, high costs might hurt Delta’s bottom line in the quarter to be reported. The carrier predicts cost per available seat mile (CASM) excluding fuel and profit sharing to augment around 4%. The figure is higher than the past forecast of an increase between 3% and 4%. This bleak outlook is due to wage hikes in April 2017 and a rise in depreciation on aircraft retirements. Weather-related expenses also weigh on costs to the tune of 0.5 points. Also, the airline assumes average fuel price per gallon of $2-$2.05.
The Zacks Consensus Estimate for first-quarter CASM excluding fuel and profit sharing stands at 11.35 cents, more than 10.92 cents reported a year ago. While the consensus mark for average fuel price per gallon net of hedging gains-mainline is pegged at $2.06, above $1.71 reported in the first quarter of 2017.
Weather-related destructions have also wreaked havoc since the beginning of the first quarter, thus forcing the carrier to cancel multiple flights. This might also hamper the company’s top line in turn.
Our proven model does not conclusively show that Delta is likely to beat estimates this quarter. This is because a stock needs to have both a positive Earnings ESP and a favorable Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. However, that is not the case here as highlighted below.
Zacks ESP: Delta has an Earnings ESP of 0.00% as both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at 73 cents per share. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Zacks Rank: Delta carries a Zacks Rank #3, which increases the predictive power of ESP. However, Delta’s 0.00% ESP makes surprise prediction difficult.
We caution against Sell-rated stocks (#4 or 5) going into an earnings announcement, especially when the stock is witnessing negative estimate revisions.
Stocks to Consider
Investors interested in the airline space may consider American Airlines Group Inc. AAL, Allegiant Travel Company ALGT and JetBlue Airways Corporation JBLU as these stocks possess the right combination of elements to deliver an earnings beat this time around.
American Airlines has an Earnings ESP of +17.00% and a Zacks Rank of 3. The company is expected to report first-quarter results on Apr 26. You can see the complete list of today’s Zacks #1 Rank stocks here.
Allegiant Travel has an Earnings ESP of +1.18% and is a Zacks #3 Ranked player. The company is scheduled to report first-quarter earnings on Apr 25.
JetBlue is also a #3 Ranked player and has an Earnings ESP of +1.73%. The company is expected to release first-quarter results on Apr 24.
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