SkyWest is one of the 10 largest U.S. airlines by passengers carried, yet many of its customers don't even realize they've flown with SkyWest, the IBD Stock Of The Day.
That's because it is the feeder airline for four major carriers. Passengers book flights with those major airlines, which use SkyWest to fill out their route maps. Utah-based SkyWest has grown into the largest regional airline in the U.S. It carried 42 million passengers last year and operates 488 aircraft, each with no more than 76 seats.
In the first quarter of this year, 41% of its flights were for United Airlines, 31% for Delta Air Lines, 18% for American Airlines, and 10% for Alaska Air Group.
On July 25, Raymond James raised the price target on SkyWest to 140 from 128 and kept an outperform rating. SkyWest's regional operation, a Raymond James analyst said, remains comfortably insulated from mainline weakness facing other U.S. airlines, TheFly.com reported.
SkyWest is acquiring a number of E175 jets from Brazil's Embraer, but those deliveries have been hit with a 50% tariff on imports from Brazil. CEO Chip Childs told analysts the company plans to delay deliveries until the tariff issue is resolved, according to a transcript provided by FactSet. It may lease planes available in the U.S.
Airline Stocks Take Flight
Airline stocks in general are at cruising altitude. IBD's airline industry group is up nearly 9% in August. Most of the group's increase came on Aug. 12, when two big news items hit the airline industry.
The July consumer price index showed airline fares increased 4% over the month, after declining 0.1% in June and falling 2.7% in May. That same day, Spirit Airlines' parent company warned that it may not be able to stay in business due to liquidity issues and a tough operational environment. Its demise would mean less competition.
SkyWest has an IBD Composite Rating of 93, the second highest in the industry group; No. 1 is Ireland-based Ryanair Holdings. The U.S. carrier posted a loss in Covid-impacted 2020 but has posted profits each year since. In the past four quarters, EPS has climbed 293%, 457%, 67% and 60%. Sales rose 19%, 26%, 18% and 19%.
The company's second-quarter sales and earnings, announced July 24, were well above estimates. For the third quarter, analysts expect earnings of $2.50 a share, an increase of 15.6% year over year. Sales are expected to climb 13% to $1.031 billion, according to FactSet.
SkyWest Stock Analysis
SkyWest stock is forming a cup-with-handle base with a 119.44 buy point, according to MarketSurge pattern recognition. Arguably, it has already topped another handle entry at 115.40.
The stock broke out of a late-stage base on Jan. 21 and climbed to an all-time high on Jan. 31 after a strong earnings report. But the breakout failed, as the stock fell as much as 45% from its peak.
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Although the current base is deeper than normal, the sell-off reset Skywest's base count. Thus, the current pattern is viewed as a lower-risk first-stage base. An Accumulation/Distribution Rating of A- indicates heavy institutional demand for the stock.
SkyWest stock has a 21-day average true range of 3.19%. The average true range is a metric available on IBD's MarketSurge that gauges the characteristic breadth of a stock's behavior. Stocks with a high ATR tend to make large price moves that can trigger sell rules. Stocks with lower ATRs tend to make more incremental moves.
With the S&P 500 and Nasdaq now in a power trend, investors can buy stocks with ATRs up to 8%, though they should be wary of being too concentrated in high-octane names.
