Delta’s Costs Keep It From Flying Higher

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In the second week of July, Delta Air Lines (DAL) will report earnings for the fiscal second quarter, although no exact date has been set. Shares of DAL have been trading in a channel since February after a drop off $60, the 2018 year-to-date high. Investors will be watching for a fundamental shift to indicate where trading might go in the second half of the year. With a target price of $72.31, analysts continue to be optimistic about the major airline’s future, but a new earnings report could shift sentiment.

Delta’s earnings reports since the beginning of 2016 have been defined by consistent earnings beats and revenue misses. Out of the last 8 earnings reports, Delta Airlines Reservations recorded six earnings beats and seven revenue misses, suggesting management has been looking out for the bottom line more than the top line. This includes efforts to fund more share repurchases and dividend payouts. The flat share price growth suggests that these profit-sharing efforts have not been well received by investors.

Last quarter, underlying revenue levels saw nice year-over-year growth, unlike the quarters before it. The 8.0 percent year-over-year growth in total revenue contrasted an average growth of -1.2 percent over the last 8 quarters. Management said that the higher sales were caused by “higher capacity combined with robust demand and strong revenue momentum.” The turnaround in financial performance suggests investors should be optimistic about DAL which saw “record numbers of passengers” and “solid improvements in customer satisfaction scores.”

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