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Backed by tailwinds like buoyant air travel demand, a strong balance sheet and upbeat capital management, SkyWest SKYW is currently trading in the vicinity of its 52-week high of $84.68 hit on Jul 9. SKYW shares have performed exceedingly well on the bourses this year, gaining 59.8% year to date compared with its industry’s growth of 9.4%. Its sector has declined 3.9% in the said time frame.

The surge in SKYW stock has left many investors contemplating whether they've missed a prime investment opportunity or if there's still time to take a position. The company has also outperformed other industry players like Alaska Air Group ALK, down 1.7%, and Delta Air Lines DAL, up 8.4%, year to date.

SKYW’s YTD Price Performance

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Technical indicators suggest continued strong performance for SKYW. The stock trades above its 50-day moving average, signaling robust upward momentum and price stability. This technical strength underscores positive market sentiment and confidence in SKYW's financial health and prospects.

50-Day Moving Average

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Factors Acting in Favor of SKYW

SkyWest, founded in 1972, is based in St. George and operates regional jets for major U.S. airlines. SKYW’S track record of successfully meeting the requirements of each of its airline heavyweight partners bodes well for the company.

Production delays at Boeing BA hurt the fleet-related plans of airline heavyweights in the United States. However, this supply-chain mess worked in favor of SKYW and improved its pilot-staffing scenario. This is because, following the recovery in air travel demand post-COVID, airline heavyweights recruited pilots from regional airlines to meet their labor crunch.

Boeing-led woes hit large airlines’ growth plans, increasing prospects of them being over-staffed. Many airline majors have now paused/slowed pilot hiring. As a result, the migration of employees from regional to mainline airlines has slowed, raising the chances of some employees even returning to regional airlines like SKYW from major airlines to save their jobs. This scenario is likely to improve SKYW’s fleet utilization and, in turn, boost revenues.

Reflecting the improvement in pilot staffing, on the first-quarter 2024 conference call, management stated that trends concerning its captain attrition were improving, and so block hours (a measure of aircraft utilization) in the current year are likely to increase by 7% to 9% on a year-over-year basis. Owing to the improvement in pilot staffing, management expects its E175 fleet to be nearly fully utilized by year-end. Additionally, SKYW expects its CRJ fleet to be better utilized owing to an improvement in the captain staffing scenario.

Another favorable aspect, owing to Boeing’s production problem, is that the demand for SKYW’s older aircraft is higher as major airlines are looking to boost capacity to match the buoyant air travel demand scenario.

SKYW’s balance sheet also looks solid and is likely to gain in strength going forward. The company stated in April that its net debt is lower than pre-pandemic levels of 2019. SKYW, which repaid more than $400 million in debt in 2023, intends to repay a similar amount in the current year. Lower capital expenditure is likely to support SKYW’s free cash flow profile, in turn boosting shareholder returns.

Long-Term Debt to Capitalization

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Earnings Estimate Revision Favoring the Stock

Reflecting the positive sentiment around SKYW, the Zacks Consensus Estimate for earnings per share has seen upward revisions.

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Favorable Valuation Picture Compared to Industry

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The regional airline is currently trading at a discount to the industry on a forward 12-month price-to-sales (P/S) ratio. SKYW’s valuation is, however, above its five-year median. The premium is justified due to SKYW’s strong financial performance and growth prospects driven by factors like improved fleet utilization and upbeat capital management.

Final Thoughts

The upbeat air travel demand bodes well for this regional carrier, which provides its service to some airline heavyweights in the United States. SkyWest's fleet upgrade efforts are commendable. Its modest capital expenditure requirements bode well. SKYW's cash flow-generating ability supports its efforts to reward its shareholders. Efforts to reduce debt levels also bode well. All these tailwinds are reflected in the earnings-per-share estimate revision trends for 2024 and 2025.

In view of the above positives, we believe that it’s not too late for investors looking to add SKYW stock to their portfolios for healthy returns. They can still invest in the stock, considering that it currently sports a Zacks Rank #1 (Strong Buy).

You can see the complete list of today’s Zacks #1 Rank stocks here.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.