Delta Stock is On The Runway Higher

May 16, 2022 at 1:00 AM
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    Major airline carrier Delta Airlines (NYSE: DAL) stock continues to recover in light of the market sell-off. The hard-hit travel industry was an epicenter during the pandemic and one of the last sectors to recover during the reopening phase. Revenue continues to grow at a triple-digit rate reflecting the strong recovery driven by pent-up demand as unit revenues finally exceeded March 2019 pre-pandemic levels for the first time in two years. The Company raised its forward guidance as revenues are expected to meet or exceed pre-pandemic levels next quarter. The recovery is well underway despite elevated fuel costs. Inflationary pressures are being passed onto consumers with soaring ticket prices still not curbing the demand. The Russian conflict had no material impact on international travel demand. Consumer demand accelerated in its latest quarter with the fading of Omicron, lifting of travel restrictions and an improvement in business travel demand and higher pricing. Labor and staffing disruption remains a challenge but should ease up moving forward with the hiring of 4,000 more workers. March 2022 was not only a profitable month but also the best cash sales month in its history driven largely by office reopenings and the resumption of face-to-face business engagements. Prudent investors seeking exposure in this recovering epicenter industry as travel resumes can watch for opportunistic pullbacks in shares of Delta Airlines.

    Q1 Fiscal 2022 Earnings Release

    On April 13, 2022, Delta Airlines released its fiscal first-quarter 2022 results for the quarter ending March 2022. The Company reported an earnings-per-share (EPS) loss of (-$1.23) excluding non-recurring items versus consensus analyst estimates for a loss of (-$1.25), a $0.02 beat. Revenues grew 125.3% year-over-year (YoY) to $9.35 billion beating analyst estimates for $8.99 billion. Total operating expenses rose $679 million compared to March 2019. The Company generated $1.8 billion in operating cash flow and $197 million in free cash flow. This was after investing $1.6 billion in aircraft purchases and modifications. At the end of March 2022, the Company had $12.8 billion in liquidity comprised of cash, short-term investments, and undrawn revolving credit facilities. Delta CEO Ed Bastien commented, “With a strong rebound in demand as omicron faded, we returned to profitability in the month of March, producing a solid adjusted operating margin of almost 10 percent.  As our brand preference and demand momentum grow, we are successfully recapturing higher fuel prices, driving our outlook for a 12 to 14 percent adjusted operating margin and strong free cash flow in the June quarter.”

    Upside Guidance

    Delta Airlines expects fiscal Q2 2022 revenues to come in between $11.66 billion to 12.16 billion versus $11.44 billion analyst estimates with capacity around 84%.

    Conference Call Takeaways

    CEO Bastien pointed out that the month of March generated $200 million in free cash flow and 10% operating margins. Revenues recovered to 79% of March 2019 levels, which was 5 points ahead of its own guidance. While January and February had operating losses, demand slingshot strongly in March to generate a solid profitable month with the best cash sales month in history despite offering 10% less seats. March was the first month of profitable unit revenues in two years. Domestic consumer revenues have exceeded 2019 levels and continue to accelerate with office reopening and resumption of face-to-face business meetings. International travel continues to accelerate its recovery and the Company has not seen any impact to travel demand from the Ukraine conflict. Nearly all European countries have removed entry testing requirements for vaccinated customers. The Company has hired 4,000 new members in preparation for the peak summer season. He summed it up, “As COVID shifts from a pandemic to a manageable seasonal virus, there are clear signs of pent-up demand for travel and experiences, as consumers' spending shifts from goods to services and experiences, travel restrictions lift and business travelers continue to return to the skies. Against this improving backdrop, we are building momentum in the June quarter, with expectations for a 12% to 14% operating margin and strong free cash flow despite higher fuel prices. Our revenue recovery is expected to reach 93% to 97% of the 2019 levels, with double-digit unit revenue improvement.”

    Delta Stock is On The Runway Higher

    DAL Opportunistic Pullback Levels

    Using the rifle charts on the weekly and daily time frames provides a precision view of the playing field for DAL stock. The weekly rifle chart peaked near the $44.00 Fibonacci (fib) level. The weekly rifle chart has been choppy as each breakout and breakdown failed to follow through much before reversing. The weekly uptrend stalled as shares fell back under the rising 5-period moving average (MA) at $41.68 and rejected the coil attempt at the weekly 50-period MA at $40.48 to fall back under the weekly 15-period MA at $39.55. The weekly stochastic has a mini pup attempt at the 70-band. The weekly lower Bollinger Band (BB) sits at $31.93 with upper BBs near the $47.16 fib. The weekly 200-period MA resistance sits near the $45.18 fib. The weekly market structure low (MSL) buy triggers on the breakout above $37.92. The daily rifle chart downtrend is slowing as the daily 5-period MA flattens at $37.96 with a flat 50-period MA at $38.76 and flat 200-period MA at $39.90 followed  by the falling daily 15-period ma at $41.23. The daily lower BBs sit at $35.56 and upper BBs sit at $41.78. Prudent investors can watch for opportunistic pullback levels at the $37.08 fib, $35.27 fib, $33.34 fib, $32.89 fib, $30.61 fib, $29.60 fib, and the $27.30 fib level. Upside trajectories range from the $44.00 fib up towards the $54.46 price level.  


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