SkyWest (SKYW): Zacks Rank Buy

Zacks

SkyWest Inc. (SKYW) has been generating solid revenue passenger miles (RPM) and available seat miles (ASM), which are key operating metrics for airlines. As a result, shares of SKYW have jumped nearly 112% since August 2012, helping it become a Zacks #1 Rank (Strong Buy) on November 9, 2012. A forward P/B multiple of just 0.5 and a P/S multiple as low as 0.2 make SkyWest an attractive pick for value investors.

Third Quarter

On November 7, SkyWest reported third-quarter earnings per share of 40 cents, which surpassed the Zacks Consensus Estimate by 29%. The company has now averaged a nearly 90% surprise in the past 4 quarters. The quarterly result also soared on a year-over-year basis.

However, total revenue of $865.3 million decreased 9.4% year over year and also lagged the Zacks Consensus Estimate. The drop in revenue was primarily due to the reduction in fuel reimbursed from the company's major partners. Management reported that this trend will continue until the first quarter of 2013. On the other side, the bottom line made a huge jump on effective cost reduction programs initiated by management in 2011.

Climbing Earnings Estimate Revisions

The Zacks Consensus Estimate for 2012 has moved higher by 7.1% to 91 cents in the past 60 days, while the Zacks Consensus Estimate for 2013 has advanced 4.1% to $1.28. The current Zacks Consensus Estimates indicate year-over-year gains of 404.7% for 2012 and 39.6% for 2013.

Impressive Valuation

The current valuation of SkyWest looks promising, given its forward P/E multiple of 10.5, P/S multiple as low as 0.2 and P/B multiple of just 0.5. (A P/E ratio below 15.0, a P/S ratio below 1.0 and a P/B ratio under 3.0 generally indicate value.)

Also, the company has other solid fundamentals, including a PEG ratio of 0.15 and an 85% discount to the benchmark of 1.0 for a fairly valued stock. This implies strong growth potential. Furthermore, SkyWest currently enjoys a dividend yield of 1.2%. Third-quarter 2012 marked the company's 70th successive dividend paying quarter. Therefore, in addition to being a value stock, SkyWest offers a lucrative growth and income opportunity.

The widening gap between the stock price and the estimates for 2012 and 2013 indicate that SkyWest is currently undervalued. This should encourage investors as the company is likely to sustain its positive trend, due to its growing business opportunities that were reflected in its fourth-quarter 2012 Traffic Data.

Headquartered in St. George, Utah, SkyWest Inc. was founded in 1972. The company operates regional airlines serving the U.S., Canada, Mexico and the Caribbean. As of December 2012, SkyWest conducted approximately 3,800 daily departures through a fleet of 744 regional aircrafts. Additionally, the company also offers aircraft leasing services. SkyWest has a market cap of approximately $685.3 million.


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