SkyWest Inc Valuation – Initial Coverage $SKYW

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Stocks for Using A Benjamin Graham Value Investing Strategy – January 2017.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how SkyWest Inc (SKYW) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Skywest, Inc. is a holding company for approximately two scheduled passenger airline operations and an aircraft leasing company. The Company operates through two segments: SkyWest Airlines and ExpressJet. SkyWest Airlines provides regional jet and turboprop service to airports located in the Midwestern and Western United States. ExpressJet provides regional jet service in the Eastern United States, from airports located in Atlanta, Cleveland, Chicago (O’Hare), Houston, Detroit, Memphis, Newark and Minneapolis, as well as Mexico and Canada. The Company, through its subsidiaries, SkyWest Airlines, Inc. (SkyWest Airlines) and ExpressJet Airlines, Inc. (ExpressJet), offers scheduled passenger service with approximately 3,400 daily departures to destinations in the United States, Canada, Mexico and the Caribbean. Its consolidated fleet consists of a total of approximately 700 aircrafts, including over 360 United fleet, over 230 Delta fleet, over 50 American fleet and over 10 Alaska fleet.

SKYW Chart

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Premium members can view a full ModernGraham valuation of the company and have access to download a PDF version of the valuation for easy reference. Recent valuations of the components of the Dow Jones Industrial Average are available for free members, including this one of Microsoft Corporation.  In addition, here is a post detailing what can be found within each individual company’s valuation.


Downloadable PDF version of this valuation:

ModernGraham Valuation of SKYW – January 2017

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $1,948,677,520 Fail
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.48 Fail
3. Earnings Stability Positive EPS for 10 years prior Fail
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end -25.47% Fail
6. Moderate PEmg Ratio PEmg < 20 23.27 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 1.20 Pass
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 1.48 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 5.27 Fail
3. Earnings Stability Positive EPS for 5 years prior Fail
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

EPSmg $1.59
MG Growth Estimate 12.86%
MG Value $54.42
Opinion Undervalued
MG Grade C
MG Value based on 3% Growth $23.06
MG Value based on 0% Growth $13.52
Market Implied Growth Rate 7.39%
Current Price $37.00
% of Intrinsic Value 67.99%

SkyWest, Inc. does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the small size, low current ratio, insufficient earnings stability or growth over the last ten years, and the high PEmg ratio. The Enterprising Investor has concerns regarding the level of debt relative to the current assets, and the lack of earnings stability over the last five years. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Undervalued after growing its EPSmg (normalized earnings) from $0.86 in 2012 to an estimated $1.59 for 2016. This level of demonstrated earnings growth outpaces the market’s implied estimate of 7.39% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value above the price.

At the time of valuation, further research into SkyWest, Inc. revealed the company was trading below its Graham Number of $42.77. The company pays a dividend of $0.18 per share, for a yield of 0.5% Its PEmg (price over earnings per share – ModernGraham) was 23.27, which was above the industry average of 17.26. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-48.61.

SkyWest, Inc. receives an average overall rating in the ModernGraham grading system, scoring a C.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$48.61
Graham Number $42.77
PEmg 23.27
Current Ratio 1.48
PB Ratio 1.20
Current Dividend $0.18
Dividend Yield 0.49%
Number of Consecutive Years of Dividend Growth 1


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Most Recent Balance Sheet Figures

Balance Sheet Information 9/1/2016
Total Current Assets $1,124,837,000
Total Current Liabilities $759,619,000
Long-Term Debt $1,924,991,000
Total Assets $5,299,764,000
Intangible Assets $8,811,000
Total Liabilities $3,675,650,000
Shares Outstanding (Diluted Average) 52,471,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $2.59
Dec2015 $2.27
Dec2014 -$0.47
Dec2013 $1.12
Dec2012 $0.99
Dec2011 -$0.52
Dec2010 $1.70
Dec2009 $1.47
Dec2008 $1.93
Dec2007 $2.49
Dec2006 $2.30
Dec2005 $1.90
Dec2004 $1.40
Dec2003 $1.15
Dec2002 $1.51
Mar2001 $1.05
Mar2000 $1.15
Mar1999 $0.85
Mar1998 $0.52
Mar1997 $0.25
Mar1996 $0.11

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $1.59
Dec2015 $0.95
Dec2014 $0.38
Dec2013 $0.86
Dec2012 $0.86
Dec2011 $1.00
Dec2010 $1.83
Dec2009 $1.94
Dec2008 $2.11
Dec2007 $2.09
Dec2006 $1.81
Dec2005 $1.51
Dec2004 $1.29
Dec2003 $1.21
Dec2002 $1.16
Mar2001 $0.91
Mar2000 $0.75

Recommended Reading:

Other ModernGraham posts about the company

None. This is the first time ModernGraham has covered the company.

Other ModernGraham posts about related companies

Delta Air Lines Inc Valuation – July 2016 $DAL
Southwest Airlines Company Valuation – October 2015 Update $LUV
Alaska Air Group Inc. Analysis – Initial Coverage $ALK
American Airlines Group Analysis – 2015 Initial Coverage $AAL
Delta Air Lines Inc. Annual Valuation – 2015 $DAL
Southwest Airlines Company Annual Valuation – 2014 $LUV


The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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