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SkyWest Gains 45% YTD: How Should You Play the SKYW Stock?
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SkyWest (SKYW - Free Report) shares have returned 45.4% year to date, outperforming both the Zacks Transportation sector and the Zacks Airline industry. SkyWest shares have also performed better than other airline players over the same time frame, including Southwest Airlines (LUV - Free Report) and Alaska Air Group (ALK - Free Report) . The outperformance can be attributed to tailwinds like buoyant air travel demand, a strong balance sheet and upbeat capital management.
YTD Price Performance
Image Source: Zacks Investment Research
Given the recent rally, the question that naturally arises is whether the stock can sustain its bullish price performance or should investors book profits now. Before that, let's delve deep to unearth the reasons behind this northward price movement.
Factors Working in Favor of the SKYW Stock
SkyWest, founded in 1972, is based in St. George and operates regional jets for major U.S. airlines. SKYW’S track record of successfully meeting the requirements of each of its airline heavyweight partners bodes well for the company. Revenues from flying agreements (which account for the bulk of the top line) are impressive owing to SKYW’s above ability. Owing to an uptick in air travel demand, passenger volumes are upbeat and this is likely to be the case going forward as well. This is likely to keep SKYW's top line in good shape.
Image Source: Zacks Investment Research
It is quite evident that the current production delays at plane manufacturer Boeing (BA - Free Report) have hurt the fleet-related plans of airline heavyweights in the United States. However, this supply-chain mess worked in favor of SkyWest and improved its pilot-staffing scenario. Due to the Boeing-induced delivery delays, many major airlines have paused/slowed pilot hiring, which, in turn, slowed down the migration of employees from regional to mainline airlines. Some employees even returned to regional airlines like SKYW from major airlines in this scenario to save their jobs. This situation is aiding SKYW’s fleet utilization.
Rosy Valuation Picture for SKYW Versus Industry
From a valuation perspective, the regional airline is currently trading at a discount to the industry on a forward 12-month price-to-sales (P/S) ratio. SKYW’s valuation is, however, above its five-year median. The premium is justified due to SKYW’s strong financial performance and growth prospects driven by factors like improved fleet utilization and upbeat capital management. The company has a Value Score of A.
Image Source: Zacks Investment Research
Key SKYW Headwinds: Weak Liquidity & High Costs
Despite the above-mentioned tailwinds, there are a couple of factors that one has to be mindful of. Even though SkyWest is attractively valued and has strong fundamentals, we are concerned about its weak liquidity position and high costs.
In the second quarter of 2024, operating expenses increased 8% year over year to $747 million. This increase in operating expenses was primarily driven by the 12% rise in block hour production year over year.
Maintenance expenses, accounting for 25% of the total operating expenses, rose 12.8% year over year. For the second half of 2024, the company anticipates a $40 million increase in maintenance expenses compared with the first half of 2024 and, on average, $200 million a quarter during 2025. The labor costs comprising salaries and benefits were up 9% year over year.
SkyWest exited the second quarter of 2024 with a current ratio (a measure of liquidity) of 0.84. A current ratio of less than 1 indicates that the company is likely to struggle to meet its short-term obligations. Reduced pricing power is another concern.
To Sum Up
There is no doubt that the stock is attractively valued, and factors like upbeat passenger volumes and an improved picture with respect to fleet utilization are serving the SKYW stock well. Despite that, given the abovementioned headwinds, we believe that it is not the right time to buy the stock. We can safely conclude that investors should refrain from rushing to buy SKYW now as it is facing quite a few challenges.
Instead, they should monitor the company’s developments closely for a more appropriate entry point. For those who already own the stock, it will be prudent to stay invested. The stock’s Zacks Rank #3 (Hold) supports our thesis.
Image: Bigstock
SkyWest Gains 45% YTD: How Should You Play the SKYW Stock?
SkyWest (SKYW - Free Report) shares have returned 45.4% year to date, outperforming both the Zacks Transportation sector and the Zacks Airline industry. SkyWest shares have also performed better than other airline players over the same time frame, including Southwest Airlines (LUV - Free Report) and Alaska Air Group (ALK - Free Report) . The outperformance can be attributed to tailwinds like buoyant air travel demand, a strong balance sheet and upbeat capital management.
YTD Price Performance
Given the recent rally, the question that naturally arises is whether the stock can sustain its bullish price performance or should investors book profits now. Before that, let's delve deep to unearth the reasons behind this northward price movement.
Factors Working in Favor of the SKYW Stock
SkyWest, founded in 1972, is based in St. George and operates regional jets for major U.S. airlines. SKYW’S track record of successfully meeting the requirements of each of its airline heavyweight partners bodes well for the company. Revenues from flying agreements (which account for the bulk of the top line) are impressive owing to SKYW’s above ability. Owing to an uptick in air travel demand, passenger volumes are upbeat and this is likely to be the case going forward as well. This is likely to keep SKYW's top line in good shape.
It is quite evident that the current production delays at plane manufacturer Boeing (BA - Free Report) have hurt the fleet-related plans of airline heavyweights in the United States. However, this supply-chain mess worked in favor of SkyWest and improved its pilot-staffing scenario. Due to the Boeing-induced delivery delays, many major airlines have paused/slowed pilot hiring, which, in turn, slowed down the migration of employees from regional to mainline airlines. Some employees even returned to regional airlines like SKYW from major airlines in this scenario to save their jobs. This situation is aiding SKYW’s fleet utilization.
Rosy Valuation Picture for SKYW Versus Industry
From a valuation perspective, the regional airline is currently trading at a discount to the industry on a forward 12-month price-to-sales (P/S) ratio. SKYW’s valuation is, however, above its five-year median. The premium is justified due to SKYW’s strong financial performance and growth prospects driven by factors like improved fleet utilization and upbeat capital management. The company has a Value Score of A.
Key SKYW Headwinds: Weak Liquidity & High Costs
Despite the above-mentioned tailwinds, there are a couple of factors that one has to be mindful of. Even though SkyWest is attractively valued and has strong fundamentals, we are concerned about its weak liquidity position and high costs.
In the second quarter of 2024, operating expenses increased 8% year over year to $747 million. This increase in operating expenses was primarily driven by the 12% rise in block hour production year over year.
Maintenance expenses, accounting for 25% of the total operating expenses, rose 12.8% year over year. For the second half of 2024, the company anticipates a $40 million increase in maintenance expenses compared with the first half of 2024 and, on average, $200 million a quarter during 2025. The labor costs comprising salaries and benefits were up 9% year over year.
SkyWest exited the second quarter of 2024 with a current ratio (a measure of liquidity) of 0.84. A current ratio of less than 1 indicates that the company is likely to struggle to meet its short-term obligations. Reduced pricing power is another concern.
To Sum Up
There is no doubt that the stock is attractively valued, and factors like upbeat passenger volumes and an improved picture with respect to fleet utilization are serving the SKYW stock well. Despite that, given the abovementioned headwinds, we believe that it is not the right time to buy the stock. We can safely conclude that investors should refrain from rushing to buy SKYW now as it is facing quite a few challenges.
Instead, they should monitor the company’s developments closely for a more appropriate entry point. For those who already own the stock, it will be prudent to stay invested. The stock’s Zacks Rank #3 (Hold) supports our thesis.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.