Delta's Worth $65 Now: Sterne Agee CRT

• In a report issued Monday, Sterne Agee CRT price target to $65 from $60 for Buy-rated Delta Air Lines, Inc. DAL.
• The boost seeks to reflect higher estimates, after the company filed an 8K with the SEC on Friday.
• Shares of Delta are up more than 4 percent on Monday trading.

After Delta Air Lines disclosed its September 2015 financial and operating results on Friday, analysts Michael Derchin and Adam Hackel boosted their EBITDAR forecast for 2016 from $9.5 billion to $9.9 billion. Consequently, they raised their price target to $65 to reflect a 6x '16 EBITDAR multiple.

The experts note that Delta trades at 4.4x estimated '16 TEV/EBITDAR, below the low end of the firm’s 4.5x - 6.5x range for network carriers. As a result, the company offers the best risk-reward profile among the Big Three network carriers, the firm believes.

Sterne Agee maintains an EPS estimate of $1.70 for the third quarter of 2015. For the period, the analysts also model an operating margin of 20.5 percent – on the mid-point of the guidance range. For the fourth quarter, however, they raised their EPS estimate to $1.26 from $1.21. Finally, for the full year of 2016 their earnings estimate stands at $5.95 per share, up from a previous $5.74 per share. The new estimates seek to account for:

1) “Superior domestic PRASM performance due to its position of primacy in Atlanta and little direct involvement in the competitive battlegrounds of Dallas and Chicago. Domestic PRASM is forecast to be flat in 4Q15 and rise 2.0% in '16”

2) Aggressive capacity cutting initiatives in problem international areas like Brazil and Japan. International PRASM is expected to fall over 7 percent in the last quarter of 2015 -- and an extra 0.5 percent in 2016

3) Flat system capacity expected for the fourth quarter. For 2016, system capacity is only forecast to surge by 1 percent

4) “Weak currencies, lower international fuel surcharges and introductory fare impacts begin to anniversary in 4Q15”

5) Jet fuel forecasts point towards an average price of $1.95 per gallon in 2016, versus $2.24 in 2015. Analysts are projecting CASM ex-fuel will surge 1.5 percent in 2016, versus a flat 2015. Accordingly, Derchin and Hackel believe Delta will be the first among the Big 3 carriers to deliver positive PRASM.

Disclosure: Javier Hasse holds no positions in any of the securities mentioned above.