Shares of SkyWest SKYW have lost 61.3% compared with the industry’s 54.3% decline in the past six months. SkyWest, like most other airline stocks, has been hit hard by sharp drop in air-travel demand due to the coronavirus outbreak. High debt levels are a major challenge for the company.
Let’s take a look into the factors that are responsible for the dismal price performance.
Decline in air-travel demand due to coronavirus-led issues is likely to have affected SkyWest’s passenger revenues in the first quarter of 2020. Also, full-year results might take a hit.
Additionally, with the company investing heavily in fleet upgrade, capital expenditures are on the rise. In 2019, the company spent $636 million as capital expenditures, driven by the purchase of 10 new E175s. Due to the impending acquisition of 16 new E175s in 2020, capex for 2020 is expected to be higher (in the range of $650-$700 million). This might dent the bottom line in 2020.
Moreover, SkyWest is a highly leveraged company. This is indicated by the fact that the ratio of its long-term debt-to-capitalization ratio (expressed as a percentage) is currently 57. This compares unfavorably with the industry’s average of 48.6. Moreover, the company’s debt-equity ratio currently exceeds 100%. A high debt-to-equity ratio implies that the company is funding most of its ventures with debt.
Negative Estimate Revisions and Weak Momentum Score
The pessimism revolving around the stock is evident from the Zacks Consensus Estimate for current year earnings being revised downward by 37.8% in the past 60 days to $4.07.
The company’s Momentum Score of F further highlights its short-term unattractiveness.
Additionally, SkyWest carries a Zacks Rank #5 (Strong Sell).
Stocks to Consider
Some better-ranked stocks in the Zacks Transportation sector are GATX Corporation GATX, Spirit Airlines, Inc. SAVE and Höegh LNG Partners LP HMLP. GATX sports a Zacks Rank #1 (Strong Buy), whereas Spirit and Höegh LNG carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Long-term (three to five years) expected earnings per share growth rate for GATX, Spirit and Höegh LNG is pegged at 15%, 12.5% and 8.5% respectively.
Looking for Stocks with Skyrocketing Upside?
Zacks has just released a Special Report on the booming investment opportunities of legal marijuana.
Ignited by new referendums and legislation, this industry is expected to blast from an already robust $6.7 billion to $20.2 billion in 2021. Early investors stand to make a killing, but you have to be ready to act and know just where to look.
See the pot trades we’re targeting>>
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
SkyWest, Inc. (SKYW) : Free Stock Analysis Report
Spirit Airlines, Inc. (SAVE) : Free Stock Analysis Report
GATX Corporation (GATX) : Free Stock Analysis Report
Hoegh LNG Partners LP (HMLP) : Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment Research
