Pinnacle Airlines Jumps on Morgan Report

A month after a lackluster debut on the Nasdaq, Pinnacle Airlines (PNCL) jumped nearly 3% after Morgan Stanley initiated coverage on the carrier with an outperform rating.

Morgan Stanley analyst William Greene told investors that Pinnacle's earnings per share could grow by 25% over the next two years. He set a $19 price target on the company, which serves as Northwest Airlines'(NWAC) regional partner and was fully owned by Northwest until it was spun off on Nov. 26. Morgan Stanley, along with five other companies, underwrote Pinnacle's $271 million IPO, splitting $16.3 million in fees.

The news helped boost Pinnacle's shares by 37 cents to $14.07, putting it above the $14 it was priced at during its IPO. On its first day on the market, the 19.4 million shares of Pinnacle closed at $13.30, 70 cents below its offering price. In the weeks since, investors haven't exactly warmed to the company. Pinnacle has never closed above $14, and it hit a low of $12.50 on Dec. 8.

In Greene's view, Pinnacle's long-term prospects are good because the company has a contract to fly 450 flights for Northwest from its three largest hubs -- Detroit, Minneapolis and Memphis -- through 2017. Pinnacle flies under a fixed-fee contract and is essentially paid per departure, which means it will make more money as Northwest expands capacity. Greene said Pinnacle could outperform other regional carriers in the years to come, piggybacking on Northwest's planned expansion.

"Northwest has another 175 regional jet deliveries on option, a majority of which we believe will be exercised," said Greene. "We believe that Pinnacle is in a strong position to receive some of these future deliveries."

With a strike looming at Mair Holdings' (MAIR) Mesaba Airlines, another carrier serving the Minnesota region on behalf of Northwest, Pinnacle could be used to pick up flights that are cancelled in the event of a strike. A 30-day cooling off period between the Air Line Pilots Association representing Mesaba's pilots and Mesaba management ends at midnight on Jan. 9, which means a strike could come as early as this weekend.