It’s mid-October and you know what that means: it’s time for third-quarter earnings. Delta (NYSE:DAL) was one of the first of its industry to release its Q3 report, marking another tough quarter. Yet, DAL stock hardly flinched.
Surprisingly enough — despite the turmoil that airlines are going through right now — Delta stock is holding up rather well.
The company reported its quarterly results on the morning of Oct. 13. On the day, shares fell 2.7%. Then they were flat in the following session, and fell 1.3% the day after.
As often is the case, it’s not the earnings that matter so much as the reaction to the earnings. And so far, sellers aren’t taking control and bulls aren’t abandoning Delta.
That bodes well for the company moving forward.
Poor Earnings for DAL Stock
Of course, it’s important not to sugarcoat this: Delta reported another bad quarter. A year ago, someone would have laughed if you had said Q2 and Q3 revenue were going to be down approximately 90% and 80%, respectively.
Delta reported an adjusted loss of $3.30 per share or $2.6 billion. However, that excludes $4 billion in “items directly related to the impact of COVID-19.” Passenger volume was down year over year and daily cash burn was up. The numbers here are ugly and uninspiring.
However, they are improving sequentially vs. last quarter.
| Metric | Q2 | Q3 |
| Adjusted Revenue Decline | -91% | -79% |
| Adjusted Loss | $3.9 billion | $2.6 billion |
| Capacity Reduction | 85% | 63% |
| Average Cash Burn | $43 million | $24 million |
| Cash Burn in Last Month of QTR. | $27 million | $18 million |
| Liquidity | $15.7 billion | $21.6 billion |
There have been other positive developments, too. Delta’s President Glen Hauenstein said, “net cash sales [are] improving from $5 million to $10 million per day at the beginning of the quarter to approximately $25 million to $30 million per day at the end of the quarter.” Hauenstein said further:
“With a slow and steady build in demand, we are restoring flying to meet our customers’ needs, while staying nimble with our capacity in light of COVID-19 […] While it may be two years or more until we see a normalized revenue environment, by restoring customer confidence in travel and building customer loyalty now, we are creating the foundation for sustainable future revenue growth.”
Breaking Down Travel
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The problem with DAL stock isn’t so much a company-specific issue. Instead, it’s industry-wide. The novel coronavirus has simply wiped out demand for travel.
Air traffic remains considerably lower than it was at this time last year. What’s more, many countries are banning others for entry. For instance, Canada and most of Europe will not accept U.S. travelers at this time due to the pandemic.
Have a look at the chart above, which highlights the year-over-year traffic trends at the TSA (if you prefer a table, it can be found here).
The downside, of course, is that traffic remains significantly lower. Over the rolling seven day period, TSA traffic is down roughly 65% vs. the same dates a year ago. But, on the plus side, traffic is up notably vs. the last month, three months and the March lows.
In four of the past seven days, TSA has logged more than 950,000 travelers. Before this week? Only three other days had logged more than 950,000 since March 17, two of them occurring earlier this month.
There’s no doubt that it will be a long bumpy road for airlines to get back to where they were before the pandemic. But at least traffic is going in the right direction.
Here’s the Thing
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One thing traders are always looking for is relative strength. That is, what stocks are outperforming the market over any given period of time. Generally, traders are looking for relative-strength plays when the market is going down. This shows us where strength may return when buyers come back to the market.
In a similar fashion, investors also look for clues around big events, like earnings. One method is to look for stocks that don’t go up on great numbers. They also look for stocks that don’t go down on poor results.
When it comes to DAL stock, the latter seems true. Delta didn’t rally on the results, so it’s not necessarily an all-clear. But the company is a top-quality airline, and will be able to make it until better days.
Eventually, airline traffic will return in a more robust manner, cash burn will turn to cash flow and revenue will become profit at the bottom line, not loss.
Here’s the problem, though. By the time all of these turns take place, DAL stock will be long gone.
The move won’t happen overnight. But once investment money starts to flow back into recovery stocks, it will be hard to buy without chasing. As a result, long-term value investors should consider initiating a long position in Delta and look for a nice dip to buy this quarter. The rebound will come eventually, and the trends are moving in the right directions.
On the date of publication, neither Matt McCall nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.
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