We have issued an updated research report on SkyWest, Inc. (SKYW - Free Report) on Dec 26. Robust passenger revenues and fleet modernization efforts buoy optimism on the stock.
Factors Influencing SkyWest’s Performance
The St. George, UT-based airline company has an impressive earnings history. The company’s earnings surpassed estimates in each of the trailing four quarters, the average being 16.1%. An impressive earnings surprise history generally boosts investors’ optimism in the stock.
SkyWest is gaining momentum on the back of solid demand for air travel, which leads to strong passenger revenues. Robust passenger revenues are expected to boost the top line in the final quarter of 2018 as well. Also, lower tax rate induced by the current tax law (Tax Cuts and Jobs Act) is a boon for SkyWest and expected to drive the bottom line in the fourth quarter. Tax rate is expected to be approximately 25% in the final quarter.
Furthermore, we are impressed by SkyWest’s efforts to modernize fleet and streamline operations. The company aims to reduce the 50-seat jets and add new E175 aircraft. In sync with fleet transition efforts, the airline company has witnessed a 4.7% year-over-year decline in block hours (a measure of aircraft utilization) in the first 11 months of 2018. The carrier has added 34 new E175 planes and one CRJ900 aircraft to its fleet and removed multiple unproductive/less-profitable aircraft since the third quarter of 2017. The company is set to take delivery of eight new E175 aircraft during the fourth quarter of 2018. By the end of the current year, SkyWest’s fleet is expected to comprise 146 E175 aircraft.
Moreover, the company’s efforts to reward shareholder in the form of dividends and share buybacks are also commendable. To this end, SkyWest raised quarterly dividend payment by 25% to 10 cents per share (40 cents annualized) in February 2018. The carrier is also active on the buyback front. Notably, the Zacks Consensus Estimate has been revised 3.9% upward in the past 60 days for current-quarter earnings. The favorable estimate revision reflects brokers’ confidence in the stock.
Additionally, SkyWest, which carries a Zacks Rank #2 (Buy), flaunts an impressive VGM Score of A. Here V stands for Value, G for Growth and M for Momentum and the score is a weighted combination of all three scores. Our research shows that stocks with VGM Scores of A or B when combined with a Zacks Rank #1 (Strong Buy) or 2 make solid investment choice.
Other Stocks to Consider
Investors interested in the broader Transportation sector may consider Spirit Airlines, Inc. (SAVE - Free Report) , Azul S.A. (AZUL - Free Report) and Frontline Ltd. (FRO - Free Report) , each sporting a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.
Shares of Spirit Airlines and Azul have gained 63.3% and 61.2% in the past six months, respectively. Meanwhile, Frontline boasts an impressive earnings history, outpacing the Zacks Consensus Estimate in each of the trailing four quarters with an average of 69%.
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