SkyWest (SKYW) Gains 37% in a Year: What's Driving the Rally?

Shares of SkyWest, Inc. SKYW have outperformed the industry in a year’s time. The stock has rallied 37.2% in the past year compared with the industry’s rise of 0.3%.

Reasons for Robust Price Performance

The St. George, UT-based regional airline operator is benefitting from improved fleet mix. Owing to transition efforts, the company is anticipated to perform well in the upcoming quarters. An improving U.S. economy and strong consumer confidence propels more Americans to take vacations. In fact, a much-improved job market and increasing disposable income have provided an incentive for consumers to opt for air travel.  This upbeat scenario bodes well for U.S.-based carriers like SkyWest, which generates significant revenues.

Moreover, SkyWest’s efforts to modernize fleet and streamline operations raise optimism on the stock. The company aims to reduce the 50-seat jets in its fleet and add new E175 aircraft. Also, the carrier has added 23 E175 planes to the fleet and removed 34 unproductive/less-profitable aircraft since the second quarter of 2017.

Furthermore, the new tax law is an added advantage for U.S.-based transportation companies like SkyWest. The significant reduction in corporate tax rate will boost cash flow, which in turn, will boost the bottom line. To this end, effective tax rate is estimated at 25% for the rest of 2018, lower than the 2017 level.

Additionally, the company’s efforts to reward shareholders in the form of dividends and share buybacks are impressive. In February 2018, SkyWest raised quarterly dividend by 25% to 10 cents per share (40 cents annualized). On the buyback front, the carrier currently has $70 million remaining under the $100-million buyback program authorized in 2017.

We are also positive on the tentative deal inked by SkyWest’s subsidiary — ExpressJet Airlines — with the Air Line Pilots Association (“ALPA”), the largest airline pilot union across the globe. The provisional deal, on successful ratification, is expected to boost the stock as satisfied labor groups generally imply greater operational efficiency.

Bullish Readings & Zacks Rank

SkyWest has an impressive earnings surprise history. It outpaced estimates in each of the trailing four quarters, the average being 14%.

The positivity revolving around the stock can be gauged from the Zacks Consensus Estimate being revised 5.2% upward in the past 60 days for current-quarter earnings.

The company also has an impressive VGM Score of A. Here, V stands for Value, G for Growth and M for Momentum and the score is a weighted combination of all three scores.

In light of these positives, we believe that SkyWest should be added by investors to their portfolios. The Zacks Rank #1 (Strong Buy) sported by the stock seems to suggest the same.

Stocks to Consider

Investors interested in the broader Transportation Sector may also consider stocks like Trinity Industries, Inc TRN, Matson, Inc MATX and ArcBest Corporation ARCB, each sporting a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Shares of Trinity Industries, Matson and ArcBest have gained 15.1%, 34.7% and 41.7% in the past six months, respectively.

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