Buy the Dip Before Delta Airlines Stock Soars Higher

Delta Air Lines (NYSE:DAL) will kick-off the much-anticipated earnings season for airlines on April 15. But DAL stock is experiencing some turbulence as it prepares to report earnings.

However, in fairness, the stock has been having an uneven recovery. If you had bought DAL stock at the beginning of the year, you’re up 22%. But in the last month, the stock has dropped about 6% on two separate occasions.

This is creating what I believe will be a great opportunity for investors to buy shares of the airline at a discount as air traffic begins to return.

Good News is Hard to Find

The series of unfortunate events started at the beginning of April. That’s when the company had to reschedule approximately 100 flights over the relatively busy Easter weekend. And although many of those flights took off the same day, it created a minor news story.

The reason for the rescheduling was easy enough to understand. The company is trying to re-staff at a time when employees are getting vaccinated (and some are reporting side effects).

I don’t say this to play Pollyanna, but just to put the delays into perspective. Delta certainly won’t be the only company to face these issues as the country reopens. And to be fair, DAL stock climbed about 7% in the week after Easter.

However, a bigger news story is the temporary suspension of the Johnson & Johnson (NYSE:JNJ) vaccine. Most travel and leisure stocks are dropping on that news. For its part, DAL stock is down 4% in early trading.

As a reminder, the J&J vaccine is the “one and done” vaccine. It’s also the only one of the three vaccines that received an Emergency Use Authorization (EUA) that is not an mRNA vaccine. For some Americans that provides the perception that it is the “safer” alternative. And with many states seeing a surge in virus cases, the short-term economic recovery is highly dependent on getting shots in arms.

I can’t tell you if this will become a bigger story. What I do know is that perception is reality. And until investors get assurances that this is only a temporary pause that is truly out of “an abundance of caution”, it’s likely to put downward pressure on all airline stocks.  

The Trend Is Your Friend

If you believe the whisper number, Delta will beat on earnings and deliver revenue of around $4.08 billion. Both of those numbers will be lower on a year-over-year basis, as expected. However, the gap is shrinking. And that trend is a reflection that air traffic is increasing.

Investors will be eager to hear what Delta has to say in terms of forward guidance. I’m not as curious. I expect Delta will be conservative in its estimates. This is one time when it’s way better to under-promise. And the airline’s 2021 revenue is still projected to be approximately 40% lower than 2019 so there’s reason for caution.

And although DAL stock has enjoyed a vaccination rally of nearly 50% in the last six months, it still lags behind the NYSE Arca Airline Index which is up 76% in that time.

With that said, I am paying a little more attention to what the analysts have to say. And at least a couple of analysts suggest that DAL stock should be able to soar back to its pre-pandemic highs. Bernstein raised its price target from $61 to $64 and Seaport Global Securities maintained its price target of $66.

Who (or What) Do You Believe?

The pandemic is not over. But there’s ample evidence that we are at the beginning of an end. Now it comes down to investor sentiment, which is likely to create a headwind for DAL stock in the short term.

However, at some point, it comes down to believing what you see. Anecdotal evidence isn’t everything, but my social media timeline tells me that people are flying. I’m not as upbeat as the analysts who are suggesting DAL stock will soar above its pre-pandemic levels. However, the trends are in the right direction and I believe the stock is finding higher levels of support.