SkyWest Stock: Post Q3 2024 Earnings Analysis (Rating Downgrade)

seekingalpha11-03 17:00

There are multiple positives from SkyWest's Q3 2024 earnings report.SkyWest's valuation remains attractive as compared to the broader market.SkyWest's has been making strong margin gains as it returns...

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}\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nSkyWest Stock: Post Q3 2024 Earnings Analysis (Rating Downgrade)\n</h2>\n\n<h4 class=\"meta\">\n\n\n2024-11-03 17:00 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4732519-skywest-stock-post-q3-2024-earnings-analysis><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>There are multiple positives from SkyWest's Q3 2024 earnings report.SkyWest's valuation remains attractive as compared to the broader market.SkyWest's has been making strong margin gains as it returns...</p>\n\n<a href=\"https://seekingalpha.com/article/4732519-skywest-stock-post-q3-2024-earnings-analysis\">Source Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":"SKYW","symbol_name":"西空航空","start_time":0,"source_url":"https://seekingalpha.com/article/4732519-skywest-stock-post-q3-2024-earnings-analysis","article_id":"2480404368","we_media_id":null,"thumbnails":["https://static.seekingalpha.com/cdn/s3/uploads/getty_images/580503985/image_580503985.jpg"],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=2480404368","pubTimestamp":1730624400,"sourceInfo":{"source_id":"seekingalpha","name":"Seeking Alpha"},"weMediaInfo":null,"summary":"There are multiple positives from SkyWest's Q3 2024 earnings report.SkyWest's valuation remains attractive as compared to the broader market.SkyWest's has been making strong margin gains as it returns","collect":0,"end_time":0,"defaultTopTitle":"seekingalpha.com","property":["rate","earning"],"viewcount":null,"language":"en","relate_stocks":{"SKYW":"西空航空"},"translate_title":"SkyWest股票：2024年第三季度后盈利分析（评级下调）","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"SKYW":0.9},"content_text":"There are multiple positives from SkyWest's Q3 2024 earnings report.SkyWest's valuation remains attractive as compared to the broader market.SkyWest's has been making strong margin gains as it returns to pre-pandemic production levels.However, the stock is overbought according to a key indicator, so profit taking might be wise here.   John M Lund Photography Inc SkyWest (NASDAQ:SKYW) looks strong after the Q3 earnings report. The company is growing revenue and earnings at a strong pace as production has been increasing. The valuation remains attractive which leaves sufficient room for the stock to make strong gains driven by the company's strong growth. However, the stock reached an extended overbought level on the monthly chart, which may not be sustainable in the near term. I last wrote about SkyWest back in February 2024 where I identified the stock as a potential market outperformer. The gist of the thesis was that SkyWest was likely to experience strong growth as travel on the airline was likely to return to pre-pandemic levels. SkyWest made gains in this area, but is still in the process of returning to pre-pandemic levels of travel. The stock's attractive valuation added to the positive outlook for the potential for market outperformance. The thesis played out nicely as SkyWest's stock increased over 70% while the S&P 500 (SPY) increased by 15%. Positive Takeaways From the Q3 2024 Earnings Report SkyWest's positive Q3 2024 earnings report demonstrates how the company is thriving in the current airline market. SkyWest beat analysts' estimates for revenue and earnings in Q3 2024. Revenue increased 19% to $913 million, beating estimates by $16.8 million. The gain in revenue was driven by a 15% y-o-y increase in block hour production, reflecting higher captain availability. EPS increased nearly 4x to $2.16, beating estimates by $0.23. The earnings gain was attributed to recapturing underserved markets and increasing the utilization of its fleet. Operating expenses increased at a reasonable pace of 9% (as compared to the large 19% revenue gain). The increase in operating expenses was a result of higher wages, aircraft maintenance, and airport related expenses. SkyWest announced a deal with United Airlines (UAL) to place 40 CRJ550s under a multi-year agreement. Most of those will be covered with SKYW's existing CRJ700 fleet. SKYW also has 20 E175 on track for delivery between Q4 2024 through 2026. That will bring the total to 278 by the end of 2026. Over 87% of SKYW's block hour production was derived from its dual-class aircraft. The company is positioned for regional market share growth due to its ongoing strong demand and delivery book. SkyWest's improved captain availability and pilot staffing balance is helping to restore production to pre-pandemic levels. Lower fuel prices could be a positive factor that could positively impact Q4 2024 results. The price of West Texas crude oil is currently around $70 per barrel, which is much lower than the upper $80s where it was trading back in April 2024. This led to more favorable jet fuel prices in the second half of 2024. Jet fuel prices are about 20% lower than 2023's average prices. Looking ahead, SkyWest expects block hour production to increase 13% for the full year as compared to 2023. This is higher than the company's estimate of 9% to 11% at the end of Q2 2024. The increased outlook is being driven by an improvement in captain availability, increased fleet utilization, and strong demand for SKYW's production. SkyWest expects to return to near pre-pandemic levels of utilization between the middle and the end of 2025. Valuation Remains Attractive SkyWest is trading attractively at just 13x expected EPS of $7.80 for 2025 (consensus). This is a bit higher than the 9x forward PE that SKYW was trading at back when I wrote about the company in February. It is also higher than the Airline industry's average forward PE of about 9x. However, the airlines are trading much lower than the forward PE of 24x for the S&P 500. As a result, I see SkyWest and the airline industry as a good place of value in the current market. Competitor, Allegiant Travel Company (ALGT) is trading slightly below SKYW as it trades at 11.7x expected EPS of $5.46 for 2025. Frontier Group Holdings (ULCC) also trades slightly below SKYW as it trades at 11.9x expected EPS of $0.51 for 2025. SkyWest is expected to grow earnings at 13% in 2025, which looks attainable considering about 8% revenue growth along with margin increases. SKYW's gross margin increased from 27.5% in Q3 2023 up to 33.6% in Q4 2024. The net income margin increased from 3% in Q3 2023 to 9.8% in Q4 2024. Continued margin gains can help drive the expected earnings growth.  Technical Perspective   SkyWest (SKY) Monthly Stock Chart with RSI and MACD (TradingView)SkyWest's monthly stock chart above shows a strong multiple-year uptrend. The purple RSI indicator in the middle of the chart rose into the overbought zone above 70. The RSI recently increased above 80. So, it is possible that a sell-off could occur in the near term on profit taking. The current overbought level may not be sustainable in the short term without a pullback. The MACD (bottom of the chart) is currently bullish as the blue line remains above the red signal line. If the blue line crosses below the red signal line, it could indicate the beginning of a downward move. If the news and conditions remain positive for SkyWest, the stock could remain in overbought or close to overbought territory. If SkyWest significantly misses estimates for Q4 or experiences a spike in fuel prices due to various factors, a pullback could occur for the stock. Another risk that could lead to a reverse in the stock price could be a shortage of pilot availability. SKYW currently experienced an increase in pilot availability. However, conditions could change to become unfavorable for the airline, making it difficult to increase utilization. Changes in consumer preferences away from air travel due to an economic decline or other factors could have a negative impact on SkyWest and lead to a negative change in the stock's direction. SkyWest could also fail to get new purchase agreements with its airline partners. This could have a negative impact on revenue and earnings and drive the stock down. SkyWest's Investment Outlook Overall, SkyWest's business looks positive as the company gets closer to pre-pandemic production levels. I like how SkyWest performed in Q3 and how it looks beginning Q4 and heading into 2025. The company appears to be on track to get close to pre-pandemic levels by the end of 2025. SkyWest's valuation remains significantly below the S&P 500 along with most of the other airlines. This could be due to the cyclical nature of the airline industry and the negative impact that higher fuel prices can have on the industry. The main thing that worries me right now is the overbought condition for the stock on the monthly chart. This indicates that it wouldn't be a great time to buy or add to the stock. It would be a good time in my opinion to consider locking in some profits by selling some shares if you bought in at lower prices. For this reason, I will change my rating to 'hold' for the stock.  I do expect the company to perform well over the long term. SkyWest has multiple positives going for as it completes 2024 and heads into 2025. So, holding onto the stock for the long term can also be a sound strategy.","kind":null,"is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"analysis","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.29.1","shortVersion":"4.29.1","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2480404368"}