Delta Air Lines (DAL) Stuck in Neutral Ahead of Earnings

Delta Air Lines, Inc. (DAL) kicks off earnings season for the struggling airline sector in Thursday's pre-market session, with analysts looking for a loss of $2.42 per share on just $3.65 billion in fourth quarter 2020 revenue. If met, earnings per share (EPS) will mark a decrease of $4.12 compared to the same quarter in 2019. The stock ran in place in October after the airline missed top- and bottom-line estimates, reporting a staggering loss of $3.30 per share.

Sector troubles have been well documented, but help is on the way, with three highly effective vaccines making their way around the planet. Even so, the rollout has been slow, and the virus keeps mutating, raising the odds that optimistic projections about second-half growth will fail to materialize. In addition, the hodgepodge of country-level prohibitions against foreign travelers may keep many folks out of the friendly skies long after they've gotten their second doses.

The holiday season turned out better-than-expected for the airline industry, with the Transportation Security Administration reporting the highest passenger totals since early March. More than 1 million travelers passed through checkpoints in seven of the nine days leading into the Jan. 4 announcement, despite warnings about mutations, super-spreader conditions, and surging infection rates.

Delta expects positive cash flow in the second quarter, but projections may have to change if the pace of vaccinations doesn't pick up in coming weeks. In the meantime, CEO Ed Bastian expects two phases to unfold in 2021, with the first looking a lot like 2020, with empty flights and social distancing measures in place. The second looks far better, in his view, with a "significant return to travel, particularly business travel."

Wall Street consensus on Delta stock is improving after months of caution, with a "Moderate Buy" rating based upon nine "Buy," four "Hold," and one "Sell" recommendation. Price targets currently range from a low of $39 to a Street-high $54, while the stock is set to open Monday's session right on top of the low target. This humble placement suggests little downside risk, but dramatic gains are unlikely until the infection runs out of gas, whether through herd immunity or vaccination coverage.

Delta Weekly Chart (2015–2021)

Delta was a market laggard for years prior to the pandemic, carving a shallow uptick that added just 12 points between 2015 and 2019's all-time high at $63.44. The first-quarter decline broke 2016 and 2018 range support into March, while positive mid-year price action remounted the lower barrier. The bounce stalled just below the second barrier in the mid-$40s in early December, with that level narrowly aligned at 200-week exponential moving average (EMA) resistance.

Price action has now settled around the 50% selloff retracement, which marks a neutral zone while investors await macro developments. Support in the mid-$30s should limit selling pressure through the first quarter, while the bull-bear standoff could last much longer, with price sandwiched between the 50- and 200-week EMAs. In the meantime, there isn't much for investors or speculators to do, except to watch COVID numbers and the vaccine "ticker."

The Bottom Line

Delta Air Lines stock has shifted into a holding pattern ahead of Thursday's earnings report, awaiting the impact of vaccinations on the second COVID wave.

Disclosure: The author held no positions in the aforementioned securities at the time of publication.