Investing

Earnings Previews: Delta Air Lines, Fastenal

The three major U.S. equity indexes closed mixed Friday. The Dow Jones industrials and the Nasdaq ended the day down 0.15% and 0.08%, respectively, while the S&P 500 added 0.12%. For the week, the Nasdaq added 4.6%, the S&P 500 rose by 1.9% and the Dow closed up 0.8%. This week’s data highlights include the monthly reports on the consumer price index (CPI) and the producer price index (PPI), due out Wednesday and Thursday, respectively, and the report on June retail sales due Friday.

Before markets opened on Monday, railcar maker Greenbrier reported quarterly results that missed analysts’ profit estimates but beat sales estimates. Shares traded down about 5% in Monday’s premarket.

The June-quarter earnings season revs up later this week, when the nation’s biggest banks begin releasing their quarterly results. Added loan loss reserves are expected to hack away at profitability. Recession fears could lead the country’s top four lenders to record loss provisions of $3.5 billion, compared to a benefit of $6.2 billion in the year-ago quarter.

After markets close Monday, soft-drink maker PepsiCo will report quarterly earnings. Here is a look at two companies on deck to report quarterly results before markets open on Wednesday.

Delta Air Lines

Since posting a post-pandemic high in April of last year, Delta Air Lines Inc. (NYSE: DAL) stock has dropped by about 43%. And there is plenty of bumpy air ahead for the airline and its competitors. Crew shortages, high fuel prices and inflation are all taking a toll on airlines’ attempts to recover. All the country’s largest carriers are negotiating contracts with their pilots and the talks are not all about money. In an ad last month, Delta’s pilots’ union claimed that “[a]t the current rate, by this fall our pilots will have flown more overtime in 2022 than in the entirety of 2018 and 2019 combined, our busiest years to date.”

The stock remains a solid Buy, based on 18 of 20 analysts’ ratings of Buy or Strong Buy. The other two rate the stock at Hold. At a recent share price of around $29.70, the upside potential based on a median price target of $54.50 is 83.5%. At the high price target of $70.00, the upside potential is about 136%.

For the second quarter, the consensus revenue forecast is $13.4 billion, which would be up 43.4% sequentially and 88% higher year over year. The airline is expected to post adjusted earnings per share (EPS) of $1.65, much better than the prior-quarter loss of $1.23 and the year-ago loss of $1.07. For the full fiscal year, analysts are currently forecasting EPS of $2.92 per share, compared to a year-ago loss of $4.08, on sales of $47.1 billion, up 57.5%.

Delta’s stock trades at 10.2 times estimated 2022 earnings, 5.1 times estimated 2023 earnings of $5.88 and 4.1 times estimated 2024 earnings of $7.31 per share. The stock’s 52-week range is $28.09 to $43.27. The company has suspended its dividend payment, and its total return for the past 12 months was negative 29.4%.

Fastenal

Fastenal Co. (NASDAQ: FAST) is a wholesale distributor of industrial and construction supplies like bolts, nuts and washers to a wide range of markets. The stock price has declined by about 20% in 2022, after posting an all-time high in late December. Fastenal has beaten profit estimates in nine consecutive quarters and its payout ratio is 67.2%. The company has raised its dividend in each of the past nine years, and its annualized dividend growth over the past 10 years is 15%.

Analysts have a consensus price target of $51.00 on the stock, with nine rating the shares at Hold and just three with a Buy or Strong Buy rating. There are four Sell or Strong Sell ratings as well. At a trading price of around $50.60, the stock is essentially trading at the median target. A high target of $70.00 implies an upside potential of about 56%.

The consensus second-quarter revenue forecast is $1.77 billion, up about 4.0% sequentially and 17.2% year over year. The company is expected to post adjusted EPS of $0.49, up 5.2% sequentially and 16.7% higher year over year. For the full fiscal year, analysts are currently forecasting EPS of $1.88, up 17.6%, on sales of $6.92 billion, up 15.2%.

Fastenal’s stock trades at 26.9 times estimated 2022 earnings, 25.0 times estimated 2023 earnings of $2.03 and 23.2 times estimated 2024 earnings of $2.18 per share. The stock’s 52-week range is $48.10 to $64.75. The company pays an annual dividend of $1.24 (yield of 2.5%) and the total return over the past 12 months was negative 2.4%.

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