Delta Needs to Catch Its Breath

Delta Air Lines $DAL is the largest publicly traded airline in the United States, a nearly $60 billion transportation giant with a premium brand, a massive loyalty program, a global network, and one of the most valuable co-branded credit card relationships in the industry.

And the business is doing many things right.

In the latest quarter, Delta generated record adjusted revenue of $17.7 billion, up 14% YoY, while premium revenue grew 17%, loyalty revenue grew 19%, cargo revenue grew 39%, and MRO revenue grew 32%. 

Management also reaffirmed full-year guidance for $6.50 to $7.50 in adjusted earnings per share and $3 billion to $4 billion in free cash flow.

Overall, it was a good report, but the stock market does not reward good businesses.

It rewards good businesses when expectations are still too low.

And that's the problem with DAL right now.

After breaking out of a massive base and running to new all-time highs, DAL entered earnings with much of the good news already priced in. 

The company beat the market’s headline expectations, but the stock still fell 1.8% in reaction to the report.

That's not the end of the world, but it's a yellow flag.

The primary trend is still higher, and the bigger picture remains constructive. 

But tactically, the stock looks like it needs a rest.

After a big run, a negative reaction to a good report tells us buyers may need more time to digest the move. 

And that's especially true when the earnings scorecard is getting messier.

The biggest issue is earnings growth.

Delta’s revenue grew nearly 19% YoY, but diluted EPS fell more than 25%, marking the steepest earnings decline since October 2024. 

That doesn't mean the stock is doomed. 

In fact, the last time earnings declined this much, it was a great buying opportunity.

But we don't need to guess.

We need to watch the post-earnings drift.

Delta has posted positive post-earnings drift in back-to-back quarters, so it wouldn't be surprising to see buyers step in again and eat this dip. 

Still, the earnings sentiment is deteriorating.

DAL has now posted three consecutive negative reaction scores, which tells us the market hasn't been impressed by these reports once we adjust for the broader tape.

At the Beat Report, we want all three pillars pointing in the same direction: technicals, fundamentals, and earnings sentiment.

With Delta, the technicals are still strong.

The fundamentals are mixed.

And earnings sentiment is a headwind.

So for now, there's nothing to do here.

DAL is still a leadership name in transportation, and the long-term chart remains attractive. 

But after Friday’s reaction, we want to let the stock consolidate and prove that buyers are still in control before getting more aggressive.

The best trades come when the chart, the fundamentals, and the earnings sentiment are all working together.

Delta is close, but it's not quite there today.

If we put on a new trade, Beat Report members will be the first to know.

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Cheers to the new earnings season,

-The Beat Team