Delta Airlines Falls Short of Expected 4Q10 EPS

Dahlman Rose is out with its report on Delta Air Lines DAL after Delta reported 4Q10 EPS below Dahlman Rose and consensus estimates. In a note to clients, Dahlman Rose writes, "Delta Air Lines reported EPS excluding items of $0.19, below our forecast of $0.26 and the consensus estimate of $0.24. The operational miss was due to higher jet fuel costs and a $45 million impact from the blizzard at the end of December. Total revenue in the quarter grew by 14% to $7.8 billion in the quarter, while operating expenses increased by 9%, implying margins of 3.8%. Jet fuel costs continued to trend higher, up by 13% due to an increase of 14% in jet fuel per gallon to $2.47. We maintain our Buy rating on Delta credit due to management's focus on debt reduction. We recommend investors Buy the 11.75% second-lien notes over the 9.5% first-lien notes due to significant yield pickup (YTW=7.0%). Dahlman Rose has a $16 price target on DAL. DAL is trading pre-market at $11.85, up 1.26% from yesterday's close.