Bad times will put Delta Airlines on standby for risk-off investors

A flight for inflation information and security could conspire against DAL stock

The good news is that Delta Airlines (NYSE:From) Increased by about 5% in a day when the broader market is collapsing. The bad news is that this may be the only good news for DAL stock shareholders in the short term. In our opinion, this means that when you fly Delta on that long-awaited journey, you may want to stick to buying stock.



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Stocks rose today on the expectation that the airline may report “less bad” news when the airline reports earnings on April 13. Nevertheless, Delta is expected to post negative earnings per share. And investors will pay close attention to the company’s revenue figures. Delta has seen steady growth in revenue over the past year. But even with revenue of more than $ 9 billion in the last quarter, revenue is still shameful enough for pre-epidemic levels.

Dual problems

One headwind that will affect DAL stock is the release of both Consumer Price Index (CPI) and Producer Price Index (PPI) for March. The CPI was released on Tuesday, the day before the Delta report PPI came out on the day of release. Both reports will show that inflation is out of control.

PPIs with the highest fuel consumption most significantly affect the Delta. Delta expects its consistent fuel price to be $ 2.80 per gallon. Overall, the airline expects non-fuel costs to increase by 15% from the same quarter of 2019. This would be a contributing factor to why Delta could post a negative bottom line number.

But the CPI may be talking more. So far, consumers are paying whatever it takes to ensure their travel plans are uninterrupted. However, inflation has become noticeable from transient. Consumers are feeling the effects. And it may be a considerable expense to travel. In the case, despite the lifting of many coveted restrictions, Delta will show that power is still expected to be at 83% of the 2019 level.

Higher expectations

Investors cannot be blamed for believing that the sell-off in airline stocks increased in early 2020. And Delta was seen as an airline with a balance sheet that could withstand shutdowns better than most. To make it somewhat believable, Delta managed to post positive free cash flow in 2021. This is expected to continue in the current quarter.

However, on multiple occasions in 2021, investors rejected attempts to push DAL stocks above the 52-week high which is acting as a strong resistance. There is very little positive news which indicates that a big rally is possible now.

Stay away from DAL stock trading in the news

None of what happened to Delta Air Lines in the last two years is the company’s fault. And it’s fair to say that could be the worst end for an airline. But that doesn’t mean everything is back to normal. The amount of business travel is significantly lower than in pre-epidemic days. And the combination of rising producer costs in addition to the picture of cloudy demand makes it difficult to see DAL stock as anything other than a hold.

You can agree with that. Analysts must. They set a consensus price target of AL 50.80 for DAL stock which will increase by 32% from the current level of the stock. And the stock enjoys a consistent level of institutional buying.

My feeling is that Delta is priced for perfection in a market and an economy that is far from perfect. With that in mind, I might consider taking a smaller position on DAL stocks in opportunistic declines, but I would like to see further progress on the earnings front before I recommend a more aggressive approach.

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