Thursday December 17, 2009
In The Cabot Benjamin Graham Value Letter, value investor J. Royden Ward suggests, "SkyWest (NASDAQ: SKYW) is undervalued based on the teachings of Graham." Here, his review.
"SkyWest is one of the largest regional airlines with service to 207 cities in the US, Canada, Mexico and the Caribbean. Connecting flights are operated as Delta Connection and United Express.
"Delta and United control SkyWest's scheduling, ticketing and price, and receive a percentage of revenues. SkyWest is reimbursed for most fuel costs.
"Demand for air travel remains subdued, although a slight pickup is no underway as evidenced by SkyWest's 9.3% increase in October passenger revenues.
"SkyWest has over $14 per share in cash ready to expand its operations, and we expect the company to add new agreements with additional major carriers.
"We foresee major changes in the airline industry that will favor small carriers such as SkyWest. After enduring an extended downturn in the business, major carriers will likely contract out many less active routes to SkyWest and others.
"Earnings per share will probably increase 7% during the next 12 months with future increases dependent on new contract wins.
"Overall, the shares are undervalued at only 0.56 times current book value. The stock will likely climb to our minimum sell price target of $25.06 witihin one or two years."
