- Delta Air Lines shares moved higher during Wednesday's session after Argus upgraded the stock to Buy with a $48 price target.
- Analyst John Staszak predicts a difficult first half of FY21 but a return to profitability in the second half and into FY22.
- The stock rebounded from support toward trendline resistance, and technical indicators suggest that it could have more room to run before consolidation.
Analyst John Staszak predicts a difficult first half of FY21 but a return to profitability during the second half and into FY22. Staszak cited an anticipated 35% to 40% reduction in operating costs, despite recent increases in fuel costs, as a key driver. With Delta shares trading at 9.4x projected FY22 earnings, the analyst believes that the stock is undervalued as COVID-19 risks abate.
Operating costs are associated with the maintenance and administration of a business on a day-to-day basis. Operating costs include direct costs of goods sold (COGS) and other operating expenses—often called selling, general, and administrative (SG&A)—which includes rent, payroll, and other overhead costs, as well as raw materials and maintenance expenses.
From a technical standpoint, the stock rebounded from its 50-day moving average toward trendline resistance. The relative strength index (RSI) remains neutral with a reading of 55.03, but the moving average convergence divergence (MACD) could see a near-term bullish crossover. These indicators suggest that the stock could have more room to run over the coming sessions.
Traders should watch for a breakout from trendline resistance at $42.50 over the coming sessions. If the stock fails to break out, traders could see a breakdown from the 50-day moving average at $39.74 toward trendline support or the 200-day moving average at $30.94. If the stock breaks out, traders should watch for a retest of highs of around $44.00.
The Bottom Line
Delta Air Lines shares moved higher during Wednesday's session after Argus upgraded the stock to Buy with a $48 price target, saying that Delta could return to profitability during the latter part of the year. After rebounding from moving average support, the stock could have more room to run before experiencing consolidation if it breaks out from trendline resistance.
The author holds no position in the stock(s) mentioned except through passively managed index funds.