Delta Air Lines and other airline stocks advanced Friday after Delta missed on earnings views Thursday but reported record revenue and upbeat forecasts, offering optimism for the airline industry ahead of more earnings next week.
Airline stock Delta gained 2.2% to 31.06 during Friday market trading. On Thursday, it closed up 3.9% trading at 30.37. American Airlines jumped 0.4% Friday while United Airlines edged up 0.2%.
On Thursday, AAL closed up 2.8% to 13.05. United Airlines rallied 3.4% to 35.40 and Alaska Air Group jumped 1.7% to 41.90.
Cowen analyst Helane Becker on Friday upgraded Delta to Outperform from Market Perform and maintained a price target of 54. Becker also raised Delta's 2022 EPS forecast to $2.84 per share and its 2023 EPS estimate to $7.00 per share.
"Looking at the 2023 consensus, we believe it is likely to come up as revenue is generally trending above estimates," Becker wrote Friday.
Morgan Stanley analyst Ravi Shanker was also flying high on Delta Friday morning.
"We remain bullish on the airline space overall and DAL is one of our preferred ways to play the upside," Shanker wrote.
Shanker said Delta's Q4 guidance "brings the swagger back" and that there are no signs of cracks in demand. The analyst added that Delta's earnings and guidance reinforced the view that the airline industry is rebounding from the Covid pandemic.
"While inflation is persistent (as it is for the rest of the economy), the operating leverage that DAL will see as demand comes back into a network that is already resourced up to receive it, should help offset the inflation," Shanker wrote Friday.
Airline Stocks: Delta Air Lines Earnings
Estimates: Wall Street predicted Delta earnings to skyrocket 413% to $1.54 per share, while revenue was expected to grow 40% to $12.9 billion, according to FactSet.
Results: Delta earnings grew more than 400% to $1.51 per share in Q3. Revenue increased 40% to $12.8 billion.
"The travel recovery continues as consumer spend shifts to experiences and demand improves in corporate and international," CEO Ed Bastian said in a statement.
Bastian added the air carrier is working to restore its full destination network by the summer of 2023. This is leading Delta to forecast it will earn more than $7 per share and have $4 billion in cash flow in 2024.
Outlook: Delta is predicting total revenue will increase 5%-9% in Q4 compared to the same period in 2019, before the Covid pandemic. The company is basing this growth on improved corporate travel and "robust domestic and international demand." Delta expects EPS will be $1-$1.25 per share in the fourth quarter.
Trans-Atlantic revenue was up 12% compared to 2019 with the demand driven by destinations including Italy, Spain and Greece, according to Delta.
The Atlanta-based air carrier missed on earnings and revenue estimates in the second quarter. However, its EPS skyrocketed to $1.44, up from a loss of $1.07 in Q2 2021. Revenue increased 73% to $12.3 billion in Q2.
Airline Stocks: Delta's Recovery
As with other airlines throughout the pandemic, Delta posted a string of losses. Delta earned $1.70 per share in Q4 2019 before posting six straight unprofitable quarters. Revenue also dropped during the pandemic and only returned to pre-Covid levels in Q2 2022.
Analysts forecast that full-year 2022 earnings will increase to $2.61 per share, up from a loss of $4.08 in 2021, according to FactSet. Wall Street expects sales for the year to soar 54% to $45.9 billion.
However, with Delta, United, Spirit Airlines and others upbeat about demand, some airline stock analysts had raised concerns about price increases — including airfares — amid concerns about a recession. Ahead of earnings there were also worries that demand in Q3 would fall off post-Labor Day after an unusually strong summer.
On Tuesday, Delta announced it has invested $60 million in Joby Aviation as its partner in offering an electric flying taxi service to airports in certain cities. Delta could increase its investment to $200 million. JOBY stock rallied 7.7% Tuesday.
Airline stock Delta has a 39 Composite Rating out of 99. It has a 35 Relative Strength Rating, an exclusive IBD Stock Checkup gauge for share-price movement. The EPS rating is 68.
United Airlines Ramps Up International Flights
United Airlines announced early Wednesday it plans to add trans-Atlantic travel locations to its schedule, a sign it is ramping up flights in the aftermath of the Covid pandemic.
Beginning in the summer of 2023, United reports will add three new city destinations, and six more flight options to popular destinations -- including Rome, Paris, Barcelona, London and Berlin.
That brings to 37 the airline's total number of destinations in Europe, Africa, India and the Middle East. United said in a press release it saw "historic levels of demand for travel to Europe in the summer peak, up 20% compared to 2019."
The company said it is now "focused on developing its network to serve continued demand strength."
United's decision to beef up its international flight schedule comes after American Airlines raised its third-quarter guidance on Tuesday.
American Airlines Increases Guidance
Fort Worth, Texas-based American reported Tuesday it expected Q3 sales to grow 13% vs. the third quarter in 2019. The company's previous revenue guidance forecast an increase of 10%-12%. AAL also increased its total revenue per available seat mile (RASM) forecast to 25%, up from a previous range of 20%-24%, vs. the same period in 2019.
American Airlines did not change its expectations for the cost of jet fuel in Q3, maintaining its view of $3.73-$3.78 per gallon. However, the company did reevaluate its cost per available seat mile, another key metric used by the airline industry. American Airlines expects those costs to be up 14% vs. Q3 2019, putting it in the high end of its previous guidance of 12%-14%.
American Airlines' Q3 revenue guidance increase follows a similar move from United Airlines in September. At the time, UAL reported it saw "strong demand" compared with before the Covid-19 pandemic.
Upcoming Earnings
Airline stock United Airlines will announce Q3 earnings after the market closes on Oct. 18. Analysts forecast earnings growing to $2.26 per share, up from a loss of $1.02 per share a year ago. Sales are expected to increase 65% to $12.7 billion.
American Airlines follows with Q3 earnings on Oct. 2o. Wall Street sees earnings per share ballooning to 53 cents, up from a loss of 99 cents a year ago. Analysts are also expecting revenue to grow 49% to $13.4 billion, according to FactSet.
Alaska Air Group also reports Q3 financials Thursday before the market opens. EPS is expected to jump 62% to $2.38 per share while sales could increase 47% to $2.8 billion
Please follow Kit Norton on Twitter @KitNorton for more coverage.
