Delta Air Lines (DAL) Q3 2022 Earnings: What to Expect

Airline stocks have been under pressure for most of the year. Recent data showed that booking trends for air travel have fallen below pre-pandemic levels. Airline bookings in August was dipped roughly 24% below where they were in August 2019.

This decline comes even though booking prices are modestly lower. This dynamic makes it challenging to jump into airline stocks, even at attractive valuations. In the case of Delta Airlines (DAL), the stock has fallen 22% year to date and 30% over the past year. When expanding that horizon by three years, the shares have fallen some 43%. This could be a buying opportunity given that the company is set to generate up to $1.7 billion in operating income with margins of 13% to 14%.

The company’s growth prospects and liquidity have drastically improved ahead of its third quarter fiscal 2022 earnings results, due before the opening bell Thursday. Ahead of the quarter, the company is expected to benefit from revenue increases from international travel, where it has reported a gradual recovery, especially in Latin America and Transatlantic routes. From an EPS perspective, Delta is expected to produce $1.55 per share, which is roughly a five-fold increase compared to the year prior.

That rate of increase will be supported by Delta’s efforts to boost profit margin which it expected to recover to pre-pandemic levels. What’s more, as we head into the holiday season, demand for travel is expected to rise which should benefit total unit revenues even as prices rise across consumer, business and international travel. As such, with the stock currently trading at a P/E multiple of 6.6 times 2023 estimates which is significantly below its historical levels, Delta is one of the better bargains in transportation stocks.

For the three months that ended September, analysts expect the Atlanta-based transportation giant to earn $1.55 per share on revenue of $12.89 billion. This compares to the year-ago quarter when earnings came to 30 cents per share on $9.15 billion in revenue. For the full year, ending in December, earnings are projected to be $2.66 per share, compared to a year-ago loss of $4.08 per share, while full-year revenue of $45.2 billion would rise 51.2% year over year.

Since the onset of the pandemic, the main question for airline stocks was whether they could navigate these global disruptions to emerge more profitable once the pandemic ended. With full-year revenue projected to rise north of 50%, comparatively Delta is still operating with the benefit of easier year-over-year metrics. Also notable, when comparing revenue from before the pandemic began, Delta this quarter is expected to see a 9% increase (3% year-over-year) since the last comparable quarter.

But this quarter will likely be the last one of such “kitchen sink-type” beats. The pandemic emergency has passed, broad travel restrictions have largely been lifted and the entire airline industry appears to have hit bottom and is ready to recover. In the second quarter, the airline posted an adjusted EPS of $1.44 per share which missed estimates by 28 cents. The company earned $735 million in net income, missing the $1.1 billion analysts expected.

The stock fell due to the earnings miss, but it wasn’t all bad news. Q2 revenue of $13.82 billion surged 94% year over year, topping forecast by more than $400 million. Consumer demand was a strong driver for revenue, which is expected to remain strong through the fourth quarter holiday season. And if judging by management’s guidance increase, and rising operating cash flow, along with operating margins, Delta stock looks poised to regain some altitude as shares still trade near yearly lows.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.