We expect airline behemoth Delta Air Lines, Inc. (DAL – Analyst Report) to report strong numbers when it reports financial results for third-quarter 2015 on Oct 14, 2015. With results scheduled to be declared prior to the commencement of trading on that day, Delta will kick off the earnings season in the airline sector.
Why a Likely Positive Surprise?
Our proven model shows that Delta is poised to beat earnings this quarter as it has the right combination of 2 key components:
Zacks ESP: The carrier currently has an Earnings ESP of +1.18%. This is because the Zacks Consensus Estimate is $1.70 per share, while the Most Accurate Estimate is pegged higher at $1.72.
Zacks Rank: Delta carries a Zacks Rank #2 (Buy). Note that stocks with a Zacks Rank #1 (Strong Buy), 2 or 3 (Hold) have a higher chance of beating earnings. Conversely, Sell-rated stocks (Zacks Rank #4 or 5) should never be considered going into an earnings announcement.
The combination of Delta's Zacks Rank #2 and earnings ESP of +1.18% makes us confident of an earnings beat at the company.
What's Driving the Better-than-Expected Earnings?
Delta boasts a solid earnings history, having delivered positive earnings surprises in each of the last four quarters, with an average beat of 3.02%. The company, along with peers such as Southwest Airlines Co. (LUV – Analyst Report), is benefiting considerably from persistent weak oil prices. Delta's results in the third quarter of the year are, once again, likely to be positively impacted by low fuel costs.
Fuel costs account for a major chunk of an airline's operating expenses. Consequently, cheaper oil prices should boost Delta's bottom line in the quarter. The company projects average fuel price per gallon (inclusive of taxes, settled hedges etc.) for the third quarter in the band of $1.80 to $1.85, which represents a significant reduction from the year-ago figure of $2.90. Revenues are expected to be pressurized by a strong dollar yet again in this quarter.
