Dahlman Rose Downgrades Pinnacle Airlines To Hold

Dahlman Rose is downgrading the common shares of Pinnacle Airlines PNCL to Hold from Buy as the stock is above its $8 price target. Dahlman is forecasting 4Q10 EPS of $0.28 compared to $0.31 last year and compared to the $0.29 consensus estimate. Management expects 4Q10 net income to decline on a year over year basis due to higher than expected pilot training costs. Pinnacle's Colgan Airlines division also expects to have lower year over year revenue due to flight cancellations during the quarter. Pinnacle represents 34% of Delta's connection fleet count, of which 29% are jets and 5% are Saabs. Part of Delta's strategy is to deemphasize the less fuel efficient sub-50 seat aircraft, and Mesaba expects to have six Saab aircraft come out of service during the quarter, negatively impacting its revenue. Pinnacle expects to see a reduction in its cash position in 4Q10 as it pays $18-$20MM in cash to finance Q400 aircraft deliveries during the quarter. In the early part of 2011, Pinnacle plans to spend an additional $20MM in aircraft financing. The aircraft are under a CPA agreement with Continental which can be expanded to 15 aircrafts. PNCL closed Monday at $8.64