Intrinsic value of Skywest - SKYW

Previous Close

$34.30

  Intrinsic Value

premium content

  Rating & Target

premium content

  Value-price divergence*

premium content

Previous close

$34.30

 
Intrinsic value

$21.60

 
Up/down potential

-37%

 
Rating

sell

 
Value-price divergence* premium content

Premium access subscription - $499/yr

please register and log in before paying

*Intrinsic value change (in %) minus stock price change (in %) in the past 12 months.

We calculate the intrinsic value of SKYW stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 2016), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 1.8

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2016(a)
   2017
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  0.81
  2.00
  2.30
  2.57
  2.81
  3.03
  3.23
  3.41
  3.57
  3.71
  3.84
  3.95
  4.06
  4.15
  4.24
  4.31
  4.38
  4.44
  4.50
  4.55
  4.59
  4.64
  4.67
  4.70
  4.73
  4.76
  4.78
  4.81
  4.83
  4.84
  4.86
Revenue, $m
  3,121
  3,183
  3,257
  3,340
  3,434
  3,538
  3,653
  3,777
  3,912
  4,057
  4,212
  4,379
  4,557
  4,746
  4,947
  5,160
  5,387
  5,626
  5,879
  6,147
  6,429
  6,727
  7,041
  7,373
  7,722
  8,089
  8,476
  8,884
  9,312
  9,763
  10,238
Variable operating expenses, $m
 
  2,941
  3,009
  3,086
  3,173
  3,269
  3,375
  3,490
  3,614
  3,748
  3,892
  4,046
  4,210
  4,385
  4,571
  4,768
  4,977
  5,198
  5,432
  5,680
  5,940
  6,216
  6,506
  6,812
  7,135
  7,474
  7,832
  8,209
  8,605
  9,021
  9,460
Fixed operating expenses, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total operating expenses, $m
  3,294
  2,941
  3,009
  3,086
  3,173
  3,269
  3,375
  3,490
  3,614
  3,748
  3,892
  4,046
  4,210
  4,385
  4,571
  4,768
  4,977
  5,198
  5,432
  5,680
  5,940
  6,216
  6,506
  6,812
  7,135
  7,474
  7,832
  8,209
  8,605
  9,021
  9,460
Operating income, $m
  -173
  242
  248
  254
  261
  269
  278
  287
  297
  308
  320
  333
  346
  361
  376
  392
  409
  428
  447
  467
  489
  511
  535
  560
  587
  615
  644
  675
  708
  742
  778
EBITDA, $m
  112
  533
  545
  559
  575
  593
  612
  633
  655
  679
  706
  733
  763
  795
  829
  864
  902
  942
  985
  1,029
  1,077
  1,127
  1,179
  1,235
  1,293
  1,355
  1,420
  1,488
  1,560
  1,635
  1,715
Interest expense (income), $m
  77
  78
  81
  84
  87
  91
  95
  99
  104
  109
  115
  121
  128
  135
  142
  150
  158
  167
  176
  186
  197
  208
  219
  232
  245
  258
  273
  288
  304
  320
  338
Earnings before tax, $m
  -249
  164
  167
  170
  174
  178
  183
  188
  193
  199
  205
  212
  219
  226
  234
  242
  251
  261
  270
  281
  292
  304
  316
  329
  342
  357
  372
  387
  404
  422
  440
Tax expense, $m
  -87
  44
  45
  46
  47
  48
  49
  51
  52
  54
  55
  57
  59
  61
  63
  65
  68
  70
  73
  76
  79
  82
  85
  89
  92
  96
  100
  105
  109
  114
  119
Net income, $m
  -162
  119
  122
  124
  127
  130
  133
  137
  141
  145
  150
  155
  160
  165
  171
  177
  183
  190
  197
  205
  213
  222
  231
  240
  250
  260
  271
  283
  295
  308
  321

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  557
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  5,137
  4,675
  4,782
  4,905
  5,043
  5,196
  5,364
  5,546
  5,744
  5,957
  6,186
  6,430
  6,691
  6,969
  7,264
  7,578
  7,910
  8,261
  8,633
  9,026
  9,441
  9,878
  10,340
  10,826
  11,339
  11,879
  12,447
  13,045
  13,675
  14,337
  15,033
Adjusted assets (=assets-cash), $m
  4,580
  4,675
  4,782
  4,905
  5,043
  5,196
  5,364
  5,546
  5,744
  5,957
  6,186
  6,430
  6,691
  6,969
  7,264
  7,578
  7,910
  8,261
  8,633
  9,026
  9,441
  9,878
  10,340
  10,826
  11,339
  11,879
  12,447
  13,045
  13,675
  14,337
  15,033
Revenue / Adjusted assets
  0.681
  0.681
  0.681
  0.681
  0.681
  0.681
  0.681
  0.681
  0.681
  0.681
  0.681
  0.681
  0.681
  0.681
  0.681
  0.681
  0.681
  0.681
  0.681
  0.681
  0.681
  0.681
  0.681
  0.681
  0.681
  0.681
  0.681
  0.681
  0.681
  0.681
  0.681
Average production assets, $m
  3,656
  3,728
  3,814
  3,912
  4,022
  4,143
  4,277
  4,423
  4,581
  4,750
  4,933
  5,128
  5,336
  5,558
  5,793
  6,043
  6,308
  6,588
  6,885
  7,198
  7,528
  7,877
  8,245
  8,633
  9,042
  9,473
  9,926
  10,403
  10,905
  11,433
  11,988
Working capital, $m
  300
  48
  49
  50
  52
  53
  55
  57
  59
  61
  63
  66
  68
  71
  74
  77
  81
  84
  88
  92
  96
  101
  106
  111
  116
  121
  127
  133
  140
  146
  154
Total debt, $m
  2,546
  2,313
  2,394
  2,488
  2,593
  2,709
  2,836
  2,975
  3,125
  3,287
  3,461
  3,647
  3,845
  4,057
  4,281
  4,519
  4,772
  5,039
  5,321
  5,620
  5,935
  6,267
  6,618
  6,988
  7,377
  7,788
  8,220
  8,674
  9,153
  9,656
  10,185
Total liabilities, $m
  3,786
  3,553
  3,634
  3,728
  3,833
  3,949
  4,076
  4,215
  4,365
  4,527
  4,701
  4,887
  5,085
  5,297
  5,521
  5,759
  6,012
  6,279
  6,561
  6,860
  7,175
  7,507
  7,858
  8,228
  8,617
  9,028
  9,460
  9,914
  10,393
  10,896
  11,425
Total equity, $m
  1,351
  1,122
  1,148
  1,177
  1,210
  1,247
  1,287
  1,331
  1,379
  1,430
  1,485
  1,543
  1,606
  1,673
  1,743
  1,819
  1,898
  1,983
  2,072
  2,166
  2,266
  2,371
  2,482
  2,598
  2,721
  2,851
  2,987
  3,131
  3,282
  3,441
  3,608
Total liabilities and equity, $m
  5,137
  4,675
  4,782
  4,905
  5,043
  5,196
  5,363
  5,546
  5,744
  5,957
  6,186
  6,430
  6,691
  6,970
  7,264
  7,578
  7,910
  8,262
  8,633
  9,026
  9,441
  9,878
  10,340
  10,826
  11,338
  11,879
  12,447
  13,045
  13,675
  14,337
  15,033
Debt-to-equity ratio
  1.885
  2.060
  2.090
  2.110
  2.140
  2.170
  2.200
  2.240
  2.270
  2.300
  2.330
  2.360
  2.390
  2.430
  2.460
  2.480
  2.510
  2.540
  2.570
  2.590
  2.620
  2.640
  2.670
  2.690
  2.710
  2.730
  2.750
  2.770
  2.790
  2.810
  2.820
Adjusted equity ratio
  0.173
  0.240
  0.240
  0.240
  0.240
  0.240
  0.240
  0.240
  0.240
  0.240
  0.240
  0.240
  0.240
  0.240
  0.240
  0.240
  0.240
  0.240
  0.240
  0.240
  0.240
  0.240
  0.240
  0.240
  0.240
  0.240
  0.240
  0.240
  0.240
  0.240
  0.240

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -162
  119
  122
  124
  127
  130
  133
  137
  141
  145
  150
  155
  160
  165
  171
  177
  183
  190
  197
  205
  213
  222
  231
  240
  250
  260
  271
  283
  295
  308
  321
Depreciation, amort., depletion, $m
  285
  291
  298
  306
  314
  324
  334
  346
  358
  371
  385
  401
  417
  434
  453
  472
  493
  515
  538
  562
  588
  615
  644
  674
  706
  740
  775
  813
  852
  893
  937
Funds from operations, $m
  502
  411
  420
  430
  441
  454
  468
  483
  499
  516
  535
  555
  576
  599
  623
  649
  676
  705
  735
  767
  801
  837
  875
  914
  956
  1,000
  1,047
  1,096
  1,147
  1,201
  1,258
Change in working capital, $m
  -5
  1
  1
  1
  1
  2
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  4
  4
  4
  4
  4
  5
  5
  5
  6
  6
  6
  6
  7
  7
Cash from operations, $m
  507
  584
  418
  428
  440
  452
  466
  481
  497
  514
  533
  553
  574
  596
  620
  646
  673
  701
  731
  763
  797
  833
  870
  909
  951
  995
  1,041
  1,089
  1,141
  1,194
  1,251
Maintenance CAPEX, $m
  0
  -286
  -291
  -298
  -306
  -314
  -324
  -334
  -346
  -358
  -371
  -385
  -401
  -417
  -434
  -453
  -472
  -493
  -515
  -538
  -562
  -588
  -615
  -644
  -674
  -706
  -740
  -775
  -813
  -852
  -893
New CAPEX, $m
  -1,154
  -72
  -86
  -98
  -110
  -122
  -134
  -146
  -158
  -170
  -182
  -195
  -208
  -222
  -235
  -250
  -265
  -280
  -296
  -313
  -331
  -349
  -368
  -388
  -409
  -430
  -453
  -477
  -502
  -528
  -555
Cash from investing activities, $m
  -1,177
  -358
  -377
  -396
  -416
  -436
  -458
  -480
  -504
  -528
  -553
  -580
  -609
  -639
  -669
  -703
  -737
  -773
  -811
  -851
  -893
  -937
  -983
  -1,032
  -1,083
  -1,136
  -1,193
  -1,252
  -1,315
  -1,380
  -1,448
Free cash flow, $m
  -670
  226
  41
  33
  24
  16
  8
  1
  -6
  -14
  -21
  -28
  -35
  -42
  -49
  -57
  -64
  -72
  -80
  -88
  -96
  -105
  -113
  -123
  -132
  -142
  -152
  -163
  -174
  -186
  -198
Issuance/(repayment) of debt, $m
  624
  72
  82
  93
  105
  116
  127
  139
  150
  162
  174
  186
  198
  211
  224
  238
  252
  267
  283
  299
  315
  333
  351
  370
  390
  410
  432
  455
  478
  503
  529
Issuance/(repurchase) of shares, $m
  8
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  623
  72
  82
  93
  105
  116
  127
  139
  150
  162
  174
  186
  198
  211
  224
  238
  252
  267
  283
  299
  315
  333
  351
  370
  390
  410
  432
  455
  478
  503
  529
Total cash flow (excl. dividends), $m
  -47
  298
  123
  126
  129
  132
  136
  140
  144
  148
  153
  158
  163
  169
  175
  182
  188
  195
  203
  211
  219
  228
  237
  247
  257
  268
  280
  292
  304
  318
  331
Retained Cash Flow (-), $m
  155
  -23
  -26
  -29
  -33
  -37
  -40
  -44
  -47
  -51
  -55
  -59
  -63
  -67
  -71
  -75
  -80
  -84
  -89
  -94
  -100
  -105
  -111
  -117
  -123
  -130
  -136
  -144
  -151
  -159
  -167
Prev. year cash balance distribution, $m
 
  252
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
 
  527
  97
  96
  96
  96
  96
  96
  96
  97
  98
  99
  101
  102
  104
  106
  109
  111
  114
  117
  120
  123
  127
  130
  134
  139
  143
  148
  153
  159
  164
Discount rate, %
 
  7.60
  7.98
  8.38
  8.80
  9.24
  9.70
  10.18
  10.69
  11.23
  11.79
  12.38
  13.00
  13.65
  14.33
  15.05
  15.80
  16.59
  17.42
  18.29
  19.20
  20.17
  21.17
  22.23
  23.34
  24.51
  25.74
  27.02
  28.37
  29.79
  31.28
PV of cash for distribution, $m
 
  490
  83
  76
  68
  61
  55
  49
  43
  37
  32
  28
  23
  19
  16
  13
  10
  8
  6
  5
  4
  3
  2
  1
  1
  1
  0
  0
  0
  0
  0
Current shareholders' claim on cash, %
  100
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0

SkyWest, Inc., through its subsidiaries, operates a regional airline in the United States. As of December 31, 2015, it provided scheduled passenger and air freight services with approximately 3,600 total daily departures to various destinations in the United States, Canada, Mexico, and the Caribbean; and had a fleet of 702 aircraft. The company operates its flights as Delta Connection, United Express, American Eagle, or Alaska under code-share arrangements. It also offers regional jet service to airports; and ground handling services for other airlines throughout its system. SkyWest, Inc. was founded in 1972 and is headquartered in St. George, Utah.

FINANCIAL RATIOS  of  Skywest (SKYW)

Valuation Ratios
P/E Ratio -11
Price to Sales 0.6
Price to Book 1.3
Price to Tangible Book
Price to Cash Flow 3.5
Price to Free Cash Flow -2.7
Growth Rates
Sales Growth Rate 0.8%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 60.1%
Cap. Spend. - 3 Yr. Gr. Rate 50%
Financial Strength
Quick Ratio 2
Current Ratio 0.2
LT Debt to Equity 165.9%
Total Debt to Equity 188.5%
Interest Coverage -2
Management Effectiveness
Return On Assets -2.3%
Ret/ On Assets - 3 Yr. Avg. 1.1%
Return On Total Capital -4.4%
Ret/ On T. Cap. - 3 Yr. Avg. -0.5%
Return On Equity -11.3%
Return On Equity - 3 Yr. Avg. -1.6%
Asset Turnover 0.6
Profitability Ratios
Gross Margin 65.5%
Gross Margin - 3 Yr. Avg. 62.3%
EBITDA Margin 3.6%
EBITDA Margin - 3 Yr. Avg. 10.2%
Operating Margin -5.5%
Oper. Margin - 3 Yr. Avg. 0.9%
Pre-Tax Margin -8%
Pre-Tax Margin - 3 Yr. Avg. -0.7%
Net Profit Margin -5.2%
Net Profit Margin - 3 Yr. Avg. -0.7%
Effective Tax Rate 34.9%
Eff/ Tax Rate - 3 Yr. Avg. 8%
Payout Ratio -5.6%

SKYW stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the SKYW stock intrinsic value calculation we used $3121 million for the last fiscal year's total revenue generated by Skywest. The default revenue input number comes from 2016 income statement of Skywest. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our SKYW stock valuation model: a) initial revenue growth rate of 2% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 7.6%, whose default value for SKYW is calculated based on our internal credit rating of Skywest, is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of Skywest.
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of SKYW stock the variable cost ratio is equal to 92.4%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $0 million in the base year in the intrinsic value calculation for SKYW stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 3.5% for Skywest.

Corporate tax rate of 27% is the nominal tax rate for Skywest. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the SKYW stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for SKYW are equal to 117.1%.

Life of production assets of 12.8 years is the average useful life of capital assets used in Skywest operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for SKYW is equal to 1.5%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $1351 million for Skywest - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 52.555 million for Skywest is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of Skywest at the current share price and the inputted number of shares is $1.8 billion.


Premium access subscription - $499/yr

please register and log in before paying
RELATED COMPANIES Price Int.Val. Rating
ALK Alaska Air Gro 89.11 236.55  str.buy
DAL Delta Air Line 45.53 130.12  str.buy
AAL American Airli 45.15 74.73  str.buy
UAL United Contine 69.56 191.07  str.buy
SAVE Spirit Airline 58.46 140.54  str.buy
LUV Southwest Airl 55.63 74.74  buy
JBLU JetBlue Airway 21.53 42.92  str.buy

COMPANY NEWS

▶ Passengers may hate airlines, but investors love them   [Apr-22-17 10:07AM  MarketWatch]
▶ Passengers may hate airlines, but investors love them   [Apr-21-17 11:09AM  MarketWatch]
▶ Facebook, Netflix Get Price-Target Hikes; SkyWest A Strong Buy   [04:23PM  Investor's Business Daily]
▶ SkyWest, Inc. Declares Quarterly Dividend   [Nov-11-16 04:01PM  PR Newswire]
▶ Why SkyWest, Inc. Stock Jumped 14.2% in October   [Nov-02-16 04:48PM  at Motley Fool]
Stock chart of SKYW Financial statements of SKYW
Valuation of Stocks

The paper VALUATION OF STOCKS: The Quest for Intrinsic Value provides a detailed description of our valuation model and discloses the calculation algorithm.

FREE DOWNLOAD
Follow us on:   twitter   twitter   twitter   twitter

VALUATION THEORY       ASSET ALLOCATION

About X-FIN       Site news       Privacy policy       Terms of use       FAQ

Copyright © X-FIN.com 2005-2017. All rigths reserved.