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Delta Air Lines Short

by SignalFactory   ·  July 13, 2020 | 13:23:53 UTC  

Delta Air Lines Short

by SignalFactory   ·  July 13, 2020 | 13:23:53 UTC  

Airlines are lining up to issue second-quarter results with Delta Air Lines scheduled to report before the market opens on July 14.

The losses will be large: Revenues are expected to be down more than 85% across the industry and not a single major carrier is expected to report positive earnings per share. But the stocks are likely to move on airlines’ commentary and forecasts for a recovery in the fall and winter of 2021.

“The worst is likely behind us, but the aviation industry still faces a steep uphill battle before we see a ‘normal’ environment,” wrote Cowen analyst Helane Becker in a note Friday. She expects the industry to take three to five years to return to 2019 revenue levels. While leisure travel is slowly returning, business and international segments have yet to see meaningful improvements. Those areas are critical for the full-service carriers to turn a profit. But work-from-home trends may delay recovery, especially if the recent wave of coronavirus cases puts more of a chill in business travel.

Delta (ticker: DAL) will take the plunge first this earnings season. Analysts expect the company to report $1.4 billion in revenue, down 89% from a year earlier. The company is expected to report a $3 billion operating loss, resulting in a loss of $4.21 per share.

Delta, in effect, is barely scraped by as a passenger airline. The carrier parked over 650 of its jets on a base of 870 aircraft, according to Becker. Delta scrapped plans to keep flying jumbo jets, planning to permanently retire its fleet of Boeing 777s due to the pandemic wiping out long-haul international flights. And Delta jostled with domestic carriers for just a few hundred thousand passengers daily (down from more than 2 million a day last year). Traffic has picked up, recently hitting 720,000 passengers on July 9, but remains well below the 2.6 million people who flew last July at this time.

Delta’s debt has soared as the company took out loans to shore up liquidity. The carrier’s debt is expected to total $23.5 billion at the end of the second quarter, more than double pre-crisis levels. Delta’s outstanding debt is now worth more than its equity with a market cap of $16.4 billion.

Even if it takes a while for business and international fares—the airline’s profit engines—to materialize, however, some analysts see value in the stock.

Delta Air Lines Short (Sell)

ENTER AT: 26.24

T.P_1: 23.18

T.P_2: 20.73

T.P_3: 19.21

S.L: 29.84

Delta Air Lines
Delta Air Lines
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