Despite the major broad market barometer on Wall Street (US500) lost more than one percentage point in the U.S. Eastern time midday on April 10, simply because of some higher-than-expected consumer price data, the shares of Delta Air Lines (DAL) jumped by 4% soon after the opening bell and lost their heat only when the core group of other stocks surrendered under the pressure of inflationary agenda.
Unfortunately, the U.S. Consumer price index (CPI) added another 0.4% on a monthly basis to a 3.5% YoY, against a 3.2% in the previous month and a 3.4% of consensus growth expectations. Of course, this raised concerns of possible postponing the Fed's interest rates cuts. The FedWatch Tool on the Chicago Mercantile Exchange (CME) now shows a 95% chance of holding borrowing costs unchanged within its historically high 5.25-5.50% range in May and a 81.5% probability of the same scenario for the U.S. central bank meeting on June 12. The majority of futures traders are betting for September 18, meaning the date of the first interest rates cut. As a result, the S&P 500 futures washed up on the shore below 5,150 points after pretending to approach 5,300 only several days before.
Meanwhile, Delta (DAL) pioneered first quarter earnings to the audience, and the reported numbers partially changed air travel segment sceptics’ perception. The report clearly deserves attention, as it has by far surpassed the expert pool forecasts, posting Q1 EPS (earnings per share) at $0.45 vs supposed $0.34. This is a sign of squeezing more-than-feared money from even a declining revenue of $12.6 billion, compared to $14.3 on average in the previous three quarters. The first quarter is usually an air pocket every year for the entire industry, yet Delta was able to collect 6.8% more than in Q1 2023, when it gained only $0.25 of pure income per share on an $11.8 billion of revenue. The first quarter of 2022 gave Delta a $1.23 loss in EPS on only $9.35 billion in sales. This actually marked the best ever Q1 in Delta's history.
From the outer point of view, Delta is progressing fine, so that financial improvements are evident. Besides, the company's own projected revenue for the upcoming April to June quarter is hitting records. Delta CEOs said they are waiting for "a mid-teens operating margin", with an EPS of $2.20 to $2.50 and targeting their brave EPS outlook of $6.00 to $7.00 for the full year of 2024, vs a consensus of $6.46. Free cash flow is anticipated at $3 to $4 billion, which also looks positive. A stronger recovery path of the business pushed some analyst houses, including Citigroup, to admit that Delta performance was encouraging. "These results should support Buy-rated Delta Air Lines’ shares on Wednesday morning," Citi wrote in a client note, adding that it allows the investment group to identify Delta as "its preferred US carrier." City analysts got a $55 price target on the stock, vs a $47 area reached after the intraday retracement.
At least, a breakthrough well above the $50-52 resistance for the last 12 months looks an almost inevitable scenario. It also sounds reasonable to expect at least a short-lived re-test of a pre-covid all-time high at $63.44, because inflation sets new standards for share pricing in many cases.
