Pinnacle
Airlines Corp (PNCL) provides regional flight capacity for Northwest Airlines
Corporation.
Essentials
(mrq)
Market
Capitalization: $304.30 million
Debt:
$128.04 million
Cash: $38.09 million
Share
Price: $13.90
52-week
high: $16.00
52-week
low: $8.30
Fundamental
Analysis
Overview
Since its 2003
IPO, Pinnacle Airlines has grown revenues and earnings at a strong pace.
Despite great results, however, PNCL is currently trading at very low
valuations. We expect valuations to improve during the coming year, as
results continue to be favorable.
Recent
Growth
Revenues grew
by 10.4% during the most recent quarter (MRQ) over the prior quarter.
Over the year-ago quarter, revenues grew by 40.4%. Similarly, EPS grew
sequentially from $0.44 to $0.58; against the same quarter of the prior year,
EPS grew by $0.18.
We view the
strong recent growth as a positive for the stock.
Recent
Developments
It was
recently announced that ten more planes will be managed by PNCL. This
should help expand earnings and revenues for the coming year.
Insider
Transactions
The most
recent three insider transactions (so far reported) were purchases by Directors
of the company. Each purchase was for 1,000 shares at prices between $13.22/share
and $13.87/share.
These insider
transactions are moderately bullish signals; they are not large, but they are
at least positive.
Institutional
Transactions
Institutional
ownership decreased by 615,644 shares to 2,971,874 shares. Neither selling
nor buying was especially concentrated.
We view the
net institutional sales as a mild negative.
Analyst
Forecasts
Analysts
forecast 2004 EPS of $1.89, and 2005 EPS of $2.24. The lowest estimates
call for $1.79 and $2.09, respectively; the highest estimates are $1.93 and
$2.30.
Analysts
forecast EPS growth to average 25% per year during the next five years.
During the
past 90 days, analysts have increased their estimates on the stock. For
FY 2004, EPS estimates have risen by $0.12. For FY 2005, EPS estimates
have risen by $0.03.
One analyst
rates the stock as a Strong Buy, three rate it as a Buy, and two rate it as a
Hold. The mean target price is $17.90/share. The lowest target is
$15.00, and the highest is $21.50.
For the MRQ,
the analyst consensus EPS estimate of $0.47 was beaten by $0.11.
We view the
high growth rate, the increasing estimates, the high price targets, and the
large upside surprise as positives for the stock.
Comparative
Valuations
PNCL has a
lower P/E and P/EG ratio than other airline companies. Partly, this is
because many other airline companies have negative earnings; however, PNCL does
also have low valuation ratios than many other profitable airlines. We
find this strange; although the company is vulnerable to troubles at NWAC, it
also has potential as a stand-alone entity. Overall, we feel that the
company has less than average exposure to many of the severe troubles of the
airline industry.
Valuations
PNCL has a
forward P/E ratio of 6.20, and a forward P/EG ratio of 0.25. We believe
that these ratios are severely discounting future earnings.
Our target
valuation is a forward P/E ratio of 10.
Key
Levels
Buy:
Market
The
fundamentals are attractive
Stop
loss: 12.94
Below Friday's
low
Target:
22.40
A forward P/E
ratio of 10
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