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Why Is SkyWest (SKYW) Down 2.2% Since Last Earnings Report?

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It has been about a month since the last earnings report for SkyWest (SKYW - Free Report) . Shares have lost about 2.2% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is SkyWest due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

SkyWest Q3 Earnings & Revenues Beat Estimates

The company’s earnings of $1.57 per share, surpassed the Zacks Consensus estimate of $1.41. Also, the bottom line expanded 55.5% on a year-over-year basis. A lower effective tax rate boosted the bottom line.

Quarterly revenues came in at $829.3 million, also beating the Zacks Consensus Estimate of $826.4 million. The top line benefited from the company’s improved fleet mix.

In fact, SkyWest’s efforts to modernize its fleet and streamline operations are very impressive.The company aims to reduce the 50-seat jets in its fleet and add new E175 aircraft. To this end, this St. George, Utah-based carrier reported a 4.7% decrease in block hours (a measure of aircraft utilization) in the third quarter of 2018. While departures declined7.3%, load factor (% of seats filled by passengers) increased 220 basis points to 82.2%.

In a bid to modernize its fleet, the carrier has added 34 new E175 planes and one CRJ900 aircraft to its fleet and removed multiple unproductive/less-profitable aircraft from its fleet since the third quarter of 2017. The company is set to take delivery of eight new E175 aircraft during the fourth quarter. By the end of the current year, SkyWest’s fleet is expected to consist of 146 E175 aircraft.

The effective tax rate in the quarter under review declined to24.5% from 38% a yearago mainly owing to the new tax law (Tax Cuts and Jobs Act). Tax rate is expected to be approximately 25% in the final quarter of 2018. Operating expenses, declined1.3% to $691.35 million. Lower aircraft maintenance and repair costs contributed to the decline. Average fuel cost per gallon, however, soared 30.6% year over year to$2.69.

The company exited the quarter with cash and marketable securities of $705 million, up 8.6% sequentially. Total debt increased to $3.1 billion from $3 billion in the second quarter of 2018.


 

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates.

VGM Scores

At this time, SkyWest has a nice Growth Score of B, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of this revision looks promising. Notably, SkyWest has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.




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