Here's Why Investors Should Retain SkyWest Stock for Now
SkyWest’s SKYW top line is boosted by the increased air travel demand. The company’s proactive measures to expand its fleet are praiseworthy. However, SKYW’s financial stability, challenged by escalated operating expenses and weak liquidity, is hurting the company’s bottom line.
Factors Favoring SKYW
Upbeat air travel demand bodes well for SkyWest's prospects, boosting the company’s charter revenues. Currently, SkyWest operates 16 aircraft under SkyWest Charter or SWC and anticipates strong growth in on-demand charters, particularly through partnerships with sports teams and various corporate clients, which are expected to boost the company’s top line.
In the second quarter of 2024, pro-rate and charter revenues reached $107 million, marking a 6% increase from the first quarter of 2024 and a substantial 30% rise compared to the second quarter of 2023, driven by higher flight volumes and passenger loads.
SkyWest’s commitment to rewarding its shareholders through share repurchases and dividends is encouraging. In the second quarter of 2024, the company repurchased 177,000 shares of common stock for $13.3 million at an average price per share of $75.23. As of June 30, 2024, SkyWest had $69 million of remaining availability under its current share repurchase program.
The company’s proactive steps to expand and modernize its fleet in response to rising demand are noteworthy. In March 2024, SKYW secured a four-year agreement with United Airlines (UAL) to add 20 partner-financed E175s, complementing a previous contract for 19 SkyWest-owned E175s.
In the second quarter of 2024, the company launched its first CRJ550 and Delta prorate operation, receiving eight of the 20 United Finance E175s and aiming to enhance partnerships and grow its regional market share. By the end of 2026, SkyWest plans to operate a total of 278 E175 aircraft, solidifying SkyWest as the largest Embraer operator in the world.
Owing to such tailwinds, shares of SKYW have surged 95.8% in the past year compared with its industry’s growth of 40.4% in the same period.
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SkyWest: Key Risks to Watch
The surge in operating expenses is adversely impacting the company’s bottom line, driven by the 12% rise in block hour production year over year. In the second quarter of 2024, operating expenses surged by 8% year over year to $747 million.
Maintenance expenses, which represent 25% of total operating costs, increased by 12.8% year over year. For the second half of 2024, the company expects maintenance expenses to rise by $40 million compared to the first half, averaging around $200 million per quarter in 2025. Moreover, labor costs, including salaries and benefits, rose by 9% year over year.
Weak liquidity is another headwind for the company. SKYW 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.
SKYW’s Zacks Rank and Stocks to Consider
SKYW currently carries a Zacks Rank #3 (Hold). Some better-ranked stocks for investors’ consideration in the Zacks Transportation sector include C.H. Robinson Worldwide CHRW and Westinghouse Air Brake Technologies WAB.
C.H. Robinson Worldwide currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here. CHRW has an expected earnings growth rate of 25.2% for the current year.
The company has an impressive earnings surprise history. Its earnings outpaced the Zacks Consensus Estimate in three of the trailing four quarters and missed once, delivering an average surprise of 7.3%. Shares of CHRW have risen 24.4% in the past year.
WAB carries a Zacks Rank #2 (Buy) at present andhas an expected earnings growth rate of 26% for the current year.
The company has an encouraging track record concerning the earnings surprise, having surpassed the Zacks Consensus Estimate in three of the trailing four quarters and missed once. The average beat is 11.8%. Shares of WAB have climbed 66.9% in the past year.
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C.H. Robinson Worldwide, Inc. (CHRW) : Free Stock Analysis Report
SkyWest, Inc. (SKYW) : Free Stock Analysis Report
Westinghouse Air Brake Technologies Corporation (WAB) : Free Stock Analysis Report