Earnings Edge: Banks, Airlines Set the Tone for 2022 (DAL & WFC Analysis)
There’s a lot to watch in 2022.
We’re still dealing with COVID-19, a rebounding economy, inflation and now rising interest rates.
Well, two companies report earnings this week, which can act as an indicator for us going forward. You want to see how investors trade airlines for the recovery and what the banks do to deal with interest rates.
Logic says a rebounding economy is great for airlines. It’s great for banks too, but rising interest rates benefit banks even more. That’s because they can create a bigger spread from their borrow rate to what they charge you.
It’s shaping up to be a good year for airlines and banking stocks. But earnings will be key. You want to see this logic play out, and our first peek may be this week.
Here’s what I’m watching…
Earnings Edge Stock No. 1: Delta Air Lines Inc. (NYSE: DAL)
Earnings Announcement Date: Thursday, before the open.
Expectations: Earnings at $0.12 per share. Revenue at $9.2 billion.
Average Analyst Rating: Outperform.
I flew the week before Christmas and will fly again this Friday for my son’s hockey tournaments. I have to say, it wasn’t as busy as I thought. It wasn’t dead, but the week before Christmas is usually a busy time to travel. We had almost no lines going through the airport.
Call it boots on the ground, or maybe just dumb luck, but air travel isn’t back to normal just yet.
That’s OK, though. There’s room for growth.
It just may set up for a volatile trading quarter as analysts try to figure out when that growth is set to kick in.
Shares of Delta have been sliding lower for months now, creating a downward trend channel.
DAL Could Pull Back
Shares won’t stay in this much longer. But seeing how the shares are leading the market — indicated by the green hue of the current price action on the chart above — a pullback is possible.
Note: To find out how I use my Profit Radar to analyze these stocks, read this.
And if it comes on earnings, shares could dip back into the low $30s.
I think DAL will have a strong move higher this year, but these first few months are wildcards.
Earnings Edge Stock No. 2: Wells Fargo & Co. (NYSE: WFC)
Earnings Announcement Date: Friday, before the open.
Expectations: Earnings at $0.99 per share. Revenue at $18.6 billion.
Average Analyst Rating: Outperform.
Banking stocks have it a little easier. Rising rates create wider margins for them over time, and a rebounding economy means consumer lending will stay strong.
Maybe that’s why Wells Fargo shares have been in a nice uptrend — the opposite direction as Delta. Again, these price channels won’t last forever, but WFC looks more promising heading into this week.
WFC Trends Higher
It’s at the top of this trend channel (denoted by the red and green lines), testing the red resistance level. And it’s doing it while the bars are shaded blue, meaning it is improving. It hasn’t even hit the leading quadrant (green bars) yet. I circled the previous times WFC hit this resistance line, and you can see the shares were already in the leading quadrant.
This tells me WFC has room to head higher. A positive earnings report could easily kick it in gear and break out of this steady price channel.
The move doesn’t have to be huge, but I’m looking for Wells Fargo to head higher this week and in the coming months.
Editor, Quick Hit Profits
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Investing has consumed my life since college. While double majoring in finance and economics at the University of North Carolina at Greensboro, I founded the university’s economics club, joined the finance club and participated in the Chartered Financial Analyst research competition to represent our school.