Easing Covid restrictions and accelerating demand were keywords that boosted Delta Air Lines (NYSE: DAL) stock after they reported earnings on Wednesday, April 13. The stock ended the day up more than 6%.
The company showed lower than expected losses for the first quarter of 2022 with revenues actually beating expectations. Total adjusted operating revenues were $9.35 billion with an adjusted loss per share of $1.23 compared to a profit of 96 cents in the March quarter of 2019.
Ed Bastian, Delta’s CEO noted:
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“With a strong rebound in demand as omicron faded, we returned to profitability in the month of March. As our brand preference and demand momentum grow, we are successfully recapturing higher fuel prices, driving our outlook for a 12% to 14% adjusted operating margin and strong free cash flow in the [second] quarter.”
Stock performance and analysts’ predictions
Bouncing off of the March lows the stock covered a lot of ground in just one month, with over 27% to the upside. With the earnings announcement in the last session, the stock moved above all of the daily Simple Moving Averages.
If this momentum continues, the upper resistance lines should be tested soon. It will be interesting to see if the stock can move past them and continue its march upwards.
It should be noted that analysts rank the stock as a strong buy. Over the next 12-months the average price they predict for the stock stands at $46.82, which potentially presents a 14.14% upside from the current trading price of $41.02.
More bullish analysts see the stock reaching a price of $57, whether this price can be reached in the next 12-months will depend on earnings reports and sentiment around other U.S. airlines which should report on April 21.
Passenger is king
Delta stated in their earnings report that they see passenger numbers slowly climbing back to pre-pandemic levels, with strong demand throughout the quarter. A comparison will have to be made with the earnings from other airlines to see whether the return of passengers is a more general trend or simply tied to Delta’s unique offer and pricing.
The second half of the year may be more challenging for airlines in particular and businesses in general, as the Russian invasion of Ukraine causes big swings in fuel, energy, and food prices. Rising inflation may also dampen the number of passengers looking to travel, though pent-up demand caused by Covid lockdowns could ease this pressure.
We’re in a new environment where after lockdowns inflation is rising at a high speed making the business environment more challenging than usual. This also creates additional challenges for investors who now have an additional variable they need to take into account before making an investment in a business.
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