Poor Timing Will Put Delta Air Lines on Standby For Risk-Off Investors

Inflation data and a flight to safety may conspire against DAL stock 

The good news is that Delta Air Lines (NYSE:DAL) is up nearly 5% on a day when the broader market is slumping. The bad news is this may be the only good news for DAL stock shareholders in the short term. In our opinion, that means that while you may be flying Delta on that long-awaited getaway, you may want to put buying the stock on hold. 

The stock is up today on the expectation that the airline may deliver “less bad” news when it reports earnings on April 13. Still, Delta is expected to post negative earnings per share. And investors will be looking carefully at the company’s revenue numbers. Delta has been seeing a steady climb in revenue for the past year. But even with revenue of over $9 billion in the last quarter, the revenue is still well shy of pre-pandemic levels.  

Double Trouble 

One of the headwinds that will affect DAL stock is the release of both the Consumer Price Index (CPI) and the Producer Price Index (PPI) for March. The CPI is released on Tuesday the day before Delta reports. The PPI comes out the same day as the release. Both reports are expected to show that inflation is far from being under control.  

The PPI affects Delta most noticeably with higher fuel costs. Delta is expecting its adjusted fuel price per gallon to be $2.80 per gallon. Overall, the airline expects non-fuel costs to increase 15% from the same quarter in 2019. This will be a contributing factor in why Delta is likely to post a negative bottom line number.  

But the CPI may be more telling. Thus far, consumers have been paying whatever it takes to ensure their travel plans are uninterrupted. However, inflation has gone from becoming transitory to becoming noticeable. Consumers are feeling its effects. And while travel may be needed it is a discretionary expense. Case in point, despite many Covid restrictions being lifted, Delta is expected to show that capacity is still at 83% of 2019 levels.  

Elevated Expectations 

Investors can’t be blamed for believing that the sell-off in airline stocks was overdone early in 2020. And Delta was seen as one of the airlines with a balance sheet that could withstand the shutdown better than most. To give some credence to that, Delta did manage to post positive free cash flow in 2021. That is expected to continue for the current quarter.  

However, on multiple occasions in 2021, investors were rebuffed at their attempt to push DAL stock above a 52-week high that is serving as a firm level of resistance. There’s little positive news that suggests a larger rally is possible now.  

Stay Away From Trading DAL Stock on the News 

None of what has happened to Delta Air Lines in the past two years is the company’s fault. And it’s fair to say that the worst may be over for the airlines. But that doesn’t mean everything is back to normal. Business travel continues to have significantly lower volume than in the pre-pandemic days. And the combination of rising producer costs in addition to a cloudy demand picture makes it hard to see DAL stock as anything other than a hold. 

You may disagree with that. The analysts certainly do. They give DAL stock a consensus price target of $50.80 which would be a 32% increase from the stock’s current level. And the stock enjoys a consistent level of institutional buying.  

My feeling is that Delta is priced for perfection in a market and an economy that is far from perfect. With that in mind, I might consider taking a small position in DAL stock on opportunistic dips, but I’ll want to see more progress on the earnings front before I recommend a more aggressive approach.