Delta's share price: what to expect in Q2 earnings

Delta's [DAL] share price dived as the coronavirus outbreak wrought havoc on the airline industry. A near-complete lack of demand, countless grounded planes and questions over costs have been weighing on investor sentiment.

The negative effects of the outbreak on Delta’s share price were clear in Q1 results, with the airline posting a $607 million pre-tax loss, and revenue coming in at $8.6 billion — down $1.9 billion from the same time last year. News that Delta was burning through $100 million a day at the end of March only saw the outlook worsen for the company.

That said, Delta’s share price has managed to regain some of its lost altitude as investors appear to bet on the recovery of the US's biggest airline.

So will Q2 results add fuel to the company’s recovery? Or is Delta's share price facing more turbulence?

What's happening with Delta's share price?

Delta's share price is down around 54.12% so far this year (through 10 July’s close). While this is by no means good news, the stock has recovered somewhat from its year-to-date low in mid-May, when it was trading at circa $19. Early June saw Delta's share price close as high as $36.97, although things have since cooled with the stock trading in the $28 to $31 range.

When does Delta report Q2 numbers?

14 July

What should investors watch out for

Government stimulus

With planes grounded, Delta may tap into the $25 billion US government loan program, established to help mitigate the effects of the coronavirus on businesses. This should help to keep Delta flying, although staff reductions are all but a certainty at this point. Despite this bad news, Delta's strong balance sheet going into the crisis means it is faring better than some of its rivals.

"We think the best-positioned airlines are firms like Delta, which came into this crisis with relatively little debt and an efficient cost base,” wrote Morningstar analyst Brian Bernard.

How much cash Delta has burnt through since March will be the main figure to watch in the second-quarter update. Any news on how the airline plans to reduce costs until the industry as a whole is back up and running could also bolster Delta’s share price after earnings are published.

Update on flight schedules

Fears that the coronavirus is still out-of-control in the US have underpinned continued volatility in Delta’s share price. There are also concerns that the federal government could re-impose travel restrictions, which was enough to wipe 3.2% off the stock in a single day back in June.

Delta Chief Executive Ed Bastian is well aware of this. In a note seen by Bloomberg, Bastian wrote that such concerns have led to “renewed caution” around Delta increasing its flight schedule. Bastian also noted that the rebound from the outbreak is likely to be “lengthy and slow”. While Delta added 1000 flights to its schedules in July, it is still operating 30% below where it did last year.

Shareholders will undoubtedly be watching for an update on flight schedules in the Q2 results. How fast the airline can get planes back in the sky will certainly have an impact on Delta’s share price. Given Bastian’s caution, though, it appears they shouldn’t get their hopes up.

What are the expectations for Delta’s Q2 earnings?

Wall Street is expecting Delta to post a loss of $4.24 a share. That's a massive decline from earnings of $2.35 a share in the same quarter last year. Revenue is pegged at $1.35 billion, an 89.2% decline from the $12.54 billion seen last year.

For Delta’s share price to climb, the airline would need to beat Wall Street’s expectations. If they post anything worse, we are likely to see the stock enter a tailspin.

What do the analysts think?

For bargain hunters, Delta's current share price could be attractive. While the stock is trading circa 57% below its 52-week high as of 10 July’s close, analyst sentiment seems to be that US airlines will recover from the crisis.

“While it's difficult to say with any certainty when air traffic will return, we are confident that demand will eventually bounce back,” Morningstar’s Brian Bernard wrote in his commentary.

Among the analysts, Delta carries an average $36 price target on Yahoo Finance. Hitting this would see a 32.9% upside on the current share price through 10 July’s close. Of the 18 analysts offering recommendations, 7 rate Delta a Strong Buy and 11 rate it a Buy.