Airlines Stocks

SkyWest Inc Valuation – July 2018 $SKYW

Company Profile (excerpt from Reuters): SkyWest, Inc., incorporated on March 2, 1972, through its subsidiaries, SkyWest Airlines, Inc. (SkyWest Airlines) and ExpressJet Airlines, Inc. (ExpressJet), operates regional airline operations in the United States. The Company’s segments include SkyWest Airlines, ExpressJet and SkyWest Leasing. As of December 31, 2016, the Company offered scheduled passenger service with approximately 3,160 daily departures to destinations in the United States, Canada, Mexico and the Caribbean. The Company’s flights are operated as Delta Connection, United Express, American Eagle or Alaska Airlines.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of SKYW – July 2018

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 $2,950,750,387 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.11 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 266.42% Pass
6. Moderate PEmg Ratio PEmg < 20 17.62 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 1.70 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 1.11 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 27.07 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 $3.39
MG Growth Estimate 15.00%
MG Value $130.44
Opinion Undervalued
MG Grade C
MG Value based on 3% Growth $49.13
MG Value based on 0% Growth $28.80
Market Implied Growth Rate 4.56%
Current Price $59.70
% of Intrinsic Value 45.77%

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 low current ratio, insufficient earnings stability over the last ten years. 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 $0.38 in 2014 to an estimated $3.39 for 2018. This level of demonstrated earnings growth outpaces the market’s implied estimate of 4.56% 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 $60.32. The company pays a dividend of $0.32 per share, for a yield of 0.5% Its PEmg (price over earnings per share – ModernGraham) was 17.62, which was above the industry average of 13.84. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-58.16.

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) -$58.16
Graham Number $60.32
PEmg 17.62
Current Ratio 1.11
PB Ratio 1.70
Current Dividend $0.32
Dividend Yield 0.54%
Number of Consecutive Years of Dividend Growth 2

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Most Recent Balance Sheet Figures

Balance Sheet Information 6/1/2018
Total Current Assets $975,225,000
Total Current Liabilities $878,595,000
Long-Term Debt $2,615,637,000
Total Assets $5,913,093,000
Intangible Assets $0
Total Liabilities $4,052,441,000
Shares Outstanding (Diluted Average) 52,913,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $4.77
Dec2017 $8.08
Dec2016 -$3.14
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

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $3.39
Dec2017 $2.32
Dec2016 -$0.32
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

Recommended Reading:

Other ModernGraham posts about the company

SkyWest Inc Valuation – Initial Coverage $SKYW

Other ModernGraham posts about related companies

American Airlines Group Inc Valuation – May 2018 $AAL
Southwest Airlines Co Valuation – May 2018 $LUV
Alaska Air Group Inc Valuation – May 2018 $ALK
Delta Air Lines Inc Valuation – March 2018 $DAL
United Continental Holdings Inc Valuation – Initial Coverage $UAL
American Airlines Group Inc Valuation – February 2017 $AAL
Southwest Airlines Co Valuation – February 2017 $LUV
JetBlue Airways Corporation Valuation – Initial Coverage $JBLU
SkyWest Inc Valuation – Initial Coverage $SKYW
Alaska Air Group Inc Valuation – December 2016 $ALK

Disclaimer:

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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