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SkyWest (SKYW) Stock Up 32% YTD: What's Driving the Rally?

Zacks Equity Research

SkyWest SKYW has had an impressive run on the bourses so far this year on the back of the tailwinds like fleet modernization efforts to improve efficiencies and its shareholder-friendly approach. Evidently, shares of this St. George, UT-based regional airline have gained 31.8%, outperforming its industry’s 5.8% growth on a year-to-date basis.

Let's delve deep to unearth the reasons behind the company's impressive price performance:

SkyWest’s efforts to modernize its fleet and streamline operations are supporting its growth potential. In the first and second quarters of 2019, the carrier has outpaced the Zacks Consensus Estimate for earnings backed by lower costs following its fleet transition efforts. Moreover, in the first eight months of 2019, the carrier reported a 6.6% increase in block hours (a measure of aircraft utilization) mainly due to the addition of more efficient planes in its fleet.

Notably, SkyWest has added 25 new E175 aircraft and 11 new CRJ900 aircraft to its fleet since the second quarter of 2018. At the end of 2018, SkyWest’s fleet consisted of 146 E175 aircraft. The company's fleet at the end of second-quarter 2019 comprises151 E175 jets.

In a bid to improve efficiency, SkyWest strengthened its partnership with Delta Air Lines DAL in August. Per the deal, SkyWest will operate six used E175 jets under a multi-year agreement that is scheduled to commence early next year. The multi-year extension of its agreement with American Airlines AAL, inked in April 2019, on 38 CRJ700 jets is an added positive. SkyWest has also signed contracts with other airline companies including United Airlines UAL.

Fleet transition efforts apart, we are also positive on SkyWest's sale of its subsidiary, ExpressJet Airlines, to a joint venture. The transaction was completed in January 2019. By selling off ExpressJet, SkyWest is able to focus more on its profit-making areas.

SkyWest’s efforts to reward its shareholders through dividends and buybacks are also commendable. To this end, SkyWest increased its quarterly dividend payment by 20% to 12 cents per share (48 cents annualized) in February 2019. The carrier is also active on the buyback front. In February 2019, SkyWest announced that its board of directors has approved a new share repurchase program worth $250 million.

Zacks Rank & Estimate Revisions

Annual estimates for SkyWest, which carries a Zacks Rank #2 (Buy), have been northward bound over the past 60 days. This reflects analysts’ confidence in the stock. Over the same period, the Zacks Consensus Estimate for current-year earnings climbed 1.3% to $6.18. For 2020, the consensus mark moved up 1.9% to $6.54 over the past 60 days. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Zacks Consensus Estimate for SkyWest’s current-year earnings indicates a 16.6% improvement year over year, higher than the industry average of 8.7%. In 2020, the bottom line is anticipated to register 5.8% growth.

Given the wealth of information at their disposal, it is in the best interest of investors to be guided by broker advice and the direction of their estimate revisions. This is because the direction of estimate revisions serves as an important pointer when it comes to the price of a stock.

The company’s impressive Momentum Score of B further highlights short-term attractiveness.

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