Sunday, December 10, 2023

Here’s what Delta Air earnings say about the rest of the industry

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Delta Air Lines Inc.’s quarterly earnings beat on Friday is fueling hope that other major U.S. air carriers will surprise Wall Street with better-than-expected profit snapshot in the next few days.


early Friday reported “impressive” fourth-quarter results, with analysts pinning the post-results stock weakness on the rallies in previous sessions and calling the drop a buying opportunity.

Delta’s results “reflect continued pricing power across the industry” as well as good execution on Delta’s part, said Christopher Raite, an analyst at Third Bridge.

In essence, people still are willing to pay up for limited seats on aircraft, Raite said.

Delta’s per-share quarterly earnings were well above the consensus that had already been revised higher in December.

Delta’s first-quarter EPS was slightly below consensus, but Wall Street took heart that the air carrier kept its full-year EPS guidance of $5 to $6 intact.

American Airlines, which earlier this week surprised Wall Street with better-than-expected guidance, is slated to report its fourth-quarter earnings before the bell on Jan. 26.

Analysts polled by FactSet expect American to report adjusted earnings of 79 cents a share on sales of $12.9 billion.

American, like Delta, suffered limited winter-weather service disruptions over the all-important holiday season.

United Airlines is scheduled to report fourth-quarter earnings after the bell on Wednesday.

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The analysts surveyed by FactSet see United reporting adjusted earnings of $2.11 a share on sales of $12.2 billion. United could surprise Wall Street by reporting a “strong” EPS guidance for the year, BofA analyst Andrew Didora said in a recent note.

The late 2023 storm was a harsh reminder that airlines still face uncertainties, but 2023 is shaping up to be a “Goldilocks year” with industry earnings above 2019’s and valuations below fundamentals, Morgan Stanley analyst Ravi Shanker said in a note earlier this week.

“The main debate in the space continues to be the battle between pent-up demand and (macroeconomic) conditions as well as the battle between cost inflation and operating leverage,” Shanker said.

Investors, however, “may need to get comfortable with overall macro first in (the first quarter) and the industry needs to avoid more black-swan events,” the analyst said.

The U.S. Global Jets ETF

has rallied 17% this week, contrasting with an advance of a little over 2% for the S&P 500 index

in the same period.

Over a 12-month span, the ETF has lost 10%, compared with a decline of 14% for the broader index.

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