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Hype Asset of the Day | January, 17th, 2022

Updated: Jan 18, 2023



Delta Air Lines (NYSE: DAL)

Delta Air Lines is one of the biggest airlines in the United States with its headquarters situated in Atlanta, Georgia. Delta was founded in 1925 by Collett E. Woolman making it one of the oldest airlines in the world. Delta Air Lines reported a beat on both the top and bottom lines, it remains optimistic about the travel environment ahead, which led to the company seeing an increase in mentions by 89% prompting investors to wonder what makes the company gain such hype. Currently, shares of Delta Air Lines trade at $37.75 each.


Positive Hype

Despite the poor performance of the airline industry through the COVID-19 years, things are picking up pace and Delta seems like the frontrunner. Here are some of the reasons you should consider taking a position in the company now.


  • Delta Air Lines reported a beat on both the top and bottom lines. The company offered an upbeat outlook for this year after quarterly profit topped Wall Street estimates on the back of robust travel demand.


  • Delta reported an adjusted EPS of $1.48 on revenue of $13.44 billion, which is ahead of Street’s expectations for earnings of $1.32 per share on revenue of $12.26B.


  • Delta is well-positioned to deliver significant earnings and free cash flow growth. We expect to grow 2023 revenue by 15 to 20 per cent and improve unit costs year-over-year, supporting a full-year outlook for earnings of $5 to $6 per share and keeping us on track to achieve more than $7 of earnings per share in 2024," CEO Ed Bastian said.


  • Delta reiterated its full-year EPS guidance of $5-$6, ahead of the $5.07 consensus.


  • The company expected March quarter revenue would be 14%-17% higher than in 2019 on the capacity that is 1% lower.


  • Vital Knowledge analysts said: “The airline industry continues to do well, and Delta’s qualitative commentary in the press release is bullish.”


  • The Texas-based carrier is due to report its quarterly result on Jan. 26. Airlines don't expect the demand to slow down anytime soon. Delta has said it expects consumers to spend $30 billion on travel this year.


  • U.S. carriers are enjoying the strongest travel demand since the start of the pandemic, boosted by the reopening of closed borders, a strong U.S. dollar and rising corporate travel demand.

Negative Hype

Despite there being an ample number of reasons that would make it a good idea to take a position in Delta Air Lines right now, it is also important to consider the downsides of this opportunity. Here are some of them.


  • Pilots at Delta Air Lines on Friday opened voting for authorizing a strike, saying negotiations with the U.S. airline for a new contract had failed to produce an "industry-leading" agreement. However, Delta noted that no strike has been called, "so this authorization vote will not affect our operation for our customers.


  • The airline's outlook for first-quarter earnings of between 15 cents to 40 cents a share fell short of estimates amid higher labour costs.


  • The passenger load factor was 85%, missing the 86.1% consensus. Available seat miles came in at 59.51B, again below the estimate of 59.66 B.


  • Delta stock was mostly hit after the airline said it expects FQ1 EPS to come in the range of $0.15-$0.40, a big miss compared to the consensus of $0.54.

Conclusion

A worsening economic outlook and rising financial fragility of U.S. households have sparked concerns about consumer spending, but travel demand remains strong and exceeds the pace of flight capacity growth, keeping ticket prices high. End demand remains strong; airlines have pricing power, and demand is returning to the more profitable business travel market. Delta's earnings are improving significantly, and the airline will turn cash flow positive very soon. Thus, considering the current price of Delta's shares, it’s a company that must be on your radar now and before the prices rise.


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