Here's Why You Should Retain SkyWest Stock Now

SkyWest's SKYW top line is boosted by an uptick in air travel demand. The company's proactive measures to expand and upgrade its fleet are commendable. Shareholder-friendly actions also bode well for SkyWest. However, high operating expenses are a major headwind.

Factors Favoring SKYW

SKYW is being well-served by the increase in flight volume and passenger loads, which is boosting charter revenues. Currently, SkyWest operates 16 aircraft at SkyWest Charter or SWC and anticipates robust expansion in on-demand charters through sports teams and various corporate opportunities, which are expected to boost the company's top line.

In the second quarter of 2024, pro-rate and charter revenues reached $107 million, reflecting a 6% increase from the first quarter of 2024 and a 30% rise from the second quarter of 2023, driven by higher flight volume and passenger loads.

SkyWest's fleet modernization and expansion efforts are commendable. In the second quarter of 2024, the company launched its first CRJ550 and Delta prorate operation. It received eight of the 20 United Finance E175s during the quarter and plans to continue enhancing its partnerships and increasing its regional market share.

By the end of 2026, management expects its E175 fleet to reach 278 aircraft, solidifying SkyWest as the largest Embraer operator in the world.

SKYW's commitment to rewarding its shareholders through share repurchase is noteworthy. Under the previously announced share repurchase program authorized by SkyWest's board of directors in May 2023, the company repurchased 177,000 shares of common stock for $13.3 million during the second quarter of 2024 at an average price per share of $75.23. As of Jun 30, 2024, SkyWest had $69 million of remaining availability under its current share repurchase program.

Shares of SKYW have surged 77.2% in the past year compared with its industry's growth of 15.2% in the same period.

Image Source: Zacks Investment Research

Key Risks

SkyWest's financial stability is challenged by its increasing operating expenses and weak liquidity. In the second quarter of 2024, operating expenses surged by 8% year over year to $747 million. This increase in operating expenses was primarily driven by the 12% rise in block hour production year over year.

Maintenance expenses, accounting for 25% of the total operating expenses, rose by 12.8% year over year. For the second half of 2024, the company anticipates a $40 million increase in maintenance expenses compared to the first half of 2024 and, on average, $200 million a quarter during 2025. The labor costs comprising salaries and benefits were up by 9% year over year.

SkyWest 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. Reduced pricing power is another concern.

Zacks Rank

SKYW currently carries a Zacks Rank #3 (Hold).

Stocks to Consider

Some better-ranked stocks for investors' consideration in the Zacks Transportation sector include C.H. Robinson Worldwide CHRW and Kirby Corporation KEX.

C.H. Robinson Worldwide currently sports a Zacks Rank #1 (Strong Buy).

CHRW has an expected earnings growth rate of 27.4% 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 3.9% in the past year.

KEX holds a Zacks Rank #2 (Buy) at present andhas an expected earnings growth rate of 40% for the current year.

The company has an encouraging track record with respect to the earnings surprise, having surpassed the Zacks Consensus Estimate in each of the trailing four quarters. The average beat is 8.7%. Shares of Kirby have climbed 44.7% in the past year.

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