Intrinsic value of SkyWest, Inc. - SKYW

Previous Close

$51.60

  Intrinsic Value

$78.59

stock screener

  Rating & Target

str. buy

+52%

Previous close

$51.60

 
Intrinsic value

$78.59

 
Up/down potential

+52%

 
Rating

str. buy

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 0001), $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 2.7

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
   2
   3
   4
   5
   6
   7
   8
   9
   10
   11
   12
   13
   14
   15
   16
   17
   18
   19
   20
   21
   22
   23
   24
   25
   26
   27
   28
   29
   30
   31

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  4.20
  4.28
  4.35
  4.42
  4.48
  4.53
  4.57
  4.62
  4.66
  4.69
  4.72
  4.75
  4.77
  4.80
  4.82
  4.84
  4.85
  4.87
  4.88
  4.89
  4.90
  4.91
  4.92
  4.93
  4.94
  4.94
  4.95
  4.95
  4.96
  4.96
Revenue, $m
  3,357
  3,501
  3,653
  3,815
  3,985
  4,166
  4,356
  4,558
  4,770
  4,994
  5,229
  5,478
  5,739
  6,014
  6,304
  6,609
  6,930
  7,267
  7,621
  7,994
  8,386
  8,798
  9,231
  9,686
  10,164
  10,667
  11,195
  11,749
  12,332
  12,943
Variable operating expenses, $m
  588
  613
  639
  668
  697
  729
  762
  798
  835
  874
  915
  959
  1,004
  1,053
  1,103
  1,157
  1,213
  1,272
  1,334
  1,399
  1,468
  1,540
  1,615
  1,695
  1,779
  1,867
  1,959
  2,056
  2,158
  2,265
Fixed operating expenses, $m
  2,284
  2,334
  2,386
  2,438
  2,492
  2,547
  2,603
  2,660
  2,719
  2,778
  2,839
  2,902
  2,966
  3,031
  3,098
  3,166
  3,236
  3,307
  3,379
  3,454
  3,530
  3,607
  3,687
  3,768
  3,851
  3,936
  4,022
  4,111
  4,201
  4,293
Total operating expenses, $m
  2,872
  2,947
  3,025
  3,106
  3,189
  3,276
  3,365
  3,458
  3,554
  3,652
  3,754
  3,861
  3,970
  4,084
  4,201
  4,323
  4,449
  4,579
  4,713
  4,853
  4,998
  5,147
  5,302
  5,463
  5,630
  5,803
  5,981
  6,167
  6,359
  6,558
Operating income, $m
  486
  554
  628
  709
  796
  890
  991
  1,100
  1,217
  1,341
  1,475
  1,617
  1,769
  1,931
  2,103
  2,287
  2,481
  2,688
  2,908
  3,141
  3,389
  3,651
  3,929
  4,223
  4,535
  4,865
  5,213
  5,582
  5,973
  6,385
EBITDA, $m
  835
  918
  1,009
  1,106
  1,211
  1,324
  1,445
  1,574
  1,713
  1,861
  2,019
  2,187
  2,366
  2,557
  2,759
  2,974
  3,203
  3,445
  3,702
  3,974
  4,262
  4,567
  4,890
  5,231
  5,593
  5,975
  6,379
  6,805
  7,256
  7,732
Interest expense (income), $m
  77
  171
  180
  190
  201
  213
  225
  237
  251
  265
  280
  296
  313
  331
  349
  369
  389
  411
  433
  457
  483
  509
  537
  566
  597
  629
  663
  699
  736
  775
  817
Earnings before tax, $m
  315
  374
  438
  508
  584
  665
  754
  849
  951
  1,061
  1,179
  1,304
  1,438
  1,582
  1,735
  1,897
  2,071
  2,255
  2,451
  2,659
  2,880
  3,114
  3,363
  3,626
  3,906
  4,202
  4,515
  4,846
  5,197
  5,568
Tax expense, $m
  85
  101
  118
  137
  158
  180
  204
  229
  257
  286
  318
  352
  388
  427
  468
  512
  559
  609
  662
  718
  778
  841
  908
  979
  1,055
  1,134
  1,219
  1,309
  1,403
  1,503
Net income, $m
  230
  273
  320
  371
  426
  486
  550
  620
  694
  775
  860
  952
  1,050
  1,155
  1,266
  1,385
  1,512
  1,646
  1,789
  1,941
  2,102
  2,273
  2,455
  2,647
  2,851
  3,067
  3,296
  3,538
  3,794
  4,065

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $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 assets, $m
  6,456
  6,733
  7,026
  7,336
  7,664
  8,011
  8,378
  8,765
  9,173
  9,603
  10,056
  10,534
  11,037
  11,566
  12,123
  12,710
  13,326
  13,975
  14,657
  15,374
  16,127
  16,920
  17,752
  18,627
  19,547
  20,513
  21,528
  22,594
  23,715
  24,891
Adjusted assets (=assets-cash), $m
  6,456
  6,733
  7,026
  7,336
  7,664
  8,011
  8,378
  8,765
  9,173
  9,603
  10,056
  10,534
  11,037
  11,566
  12,123
  12,710
  13,326
  13,975
  14,657
  15,374
  16,127
  16,920
  17,752
  18,627
  19,547
  20,513
  21,528
  22,594
  23,715
  24,891
Revenue / Adjusted assets
  0.520
  0.520
  0.520
  0.520
  0.520
  0.520
  0.520
  0.520
  0.520
  0.520
  0.520
  0.520
  0.520
  0.520
  0.520
  0.520
  0.520
  0.520
  0.520
  0.520
  0.520
  0.520
  0.520
  0.520
  0.520
  0.520
  0.520
  0.520
  0.520
  0.520
Average production assets, $m
  4,788
  4,992
  5,210
  5,440
  5,683
  5,941
  6,212
  6,499
  6,802
  7,121
  7,457
  7,811
  8,184
  8,577
  8,990
  9,424
  9,882
  10,363
  10,868
  11,400
  11,959
  12,546
  13,164
  13,813
  14,494
  15,211
  15,963
  16,754
  17,585
  18,457
Working capital, $m
  -252
  -263
  -274
  -286
  -299
  -312
  -327
  -342
  -358
  -375
  -392
  -411
  -430
  -451
  -473
  -496
  -520
  -545
  -572
  -600
  -629
  -660
  -692
  -726
  -762
  -800
  -840
  -881
  -925
  -971
Total debt, $m
  3,335
  3,524
  3,724
  3,936
  4,160
  4,398
  4,648
  4,912
  5,191
  5,485
  5,794
  6,120
  6,464
  6,825
  7,206
  7,606
  8,028
  8,470
  8,936
  9,426
  9,941
  10,482
  11,051
  11,648
  12,276
  12,936
  13,629
  14,358
  15,123
  15,927
Total liabilities, $m
  4,410
  4,598
  4,799
  5,011
  5,235
  5,472
  5,722
  5,986
  6,265
  6,559
  6,868
  7,195
  7,538
  7,900
  8,280
  8,681
  9,102
  9,545
  10,010
  10,500
  11,015
  11,556
  12,125
  12,722
  13,350
  14,010
  14,704
  15,432
  16,197
  17,001
Total equity, $m
  2,047
  2,134
  2,227
  2,326
  2,430
  2,540
  2,656
  2,778
  2,908
  3,044
  3,188
  3,339
  3,499
  3,666
  3,843
  4,029
  4,224
  4,430
  4,646
  4,873
  5,112
  5,364
  5,627
  5,905
  6,196
  6,503
  6,824
  7,162
  7,518
  7,891
Total liabilities and equity, $m
  6,457
  6,732
  7,026
  7,337
  7,665
  8,012
  8,378
  8,764
  9,173
  9,603
  10,056
  10,534
  11,037
  11,566
  12,123
  12,710
  13,326
  13,975
  14,656
  15,373
  16,127
  16,920
  17,752
  18,627
  19,546
  20,513
  21,528
  22,594
  23,715
  24,892
Debt-to-equity ratio
  1.630
  1.650
  1.670
  1.690
  1.710
  1.730
  1.750
  1.770
  1.790
  1.800
  1.820
  1.830
  1.850
  1.860
  1.880
  1.890
  1.900
  1.910
  1.920
  1.930
  1.940
  1.950
  1.960
  1.970
  1.980
  1.990
  2.000
  2.000
  2.010
  2.020
Adjusted equity ratio
  0.317
  0.317
  0.317
  0.317
  0.317
  0.317
  0.317
  0.317
  0.317
  0.317
  0.317
  0.317
  0.317
  0.317
  0.317
  0.317
  0.317
  0.317
  0.317
  0.317
  0.317
  0.317
  0.317
  0.317
  0.317
  0.317
  0.317
  0.317
  0.317
  0.317

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  230
  273
  320
  371
  426
  486
  550
  620
  694
  775
  860
  952
  1,050
  1,155
  1,266
  1,385
  1,512
  1,646
  1,789
  1,941
  2,102
  2,273
  2,455
  2,647
  2,851
  3,067
  3,296
  3,538
  3,794
  4,065
Depreciation, amort., depletion, $m
  349
  364
  380
  397
  415
  434
  453
  474
  496
  520
  544
  570
  597
  626
  656
  688
  721
  756
  793
  832
  873
  916
  961
  1,008
  1,058
  1,110
  1,165
  1,223
  1,284
  1,347
Funds from operations, $m
  579
  637
  700
  768
  841
  919
  1,004
  1,094
  1,191
  1,294
  1,405
  1,522
  1,647
  1,781
  1,922
  2,073
  2,233
  2,403
  2,582
  2,773
  2,975
  3,189
  3,416
  3,656
  3,909
  4,177
  4,461
  4,761
  5,078
  5,412
Change in working capital, $m
  -10
  -11
  -11
  -12
  -13
  -14
  -14
  -15
  -16
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -24
  -25
  -27
  -28
  -29
  -31
  -32
  -34
  -36
  -38
  -40
  -42
  -44
  -46
Cash from operations, $m
  590
  648
  711
  780
  854
  933
  1,018
  1,109
  1,207
  1,311
  1,422
  1,541
  1,667
  1,801
  1,944
  2,096
  2,257
  2,428
  2,609
  2,801
  3,005
  3,220
  3,448
  3,690
  3,945
  4,215
  4,501
  4,802
  5,121
  5,458
Maintenance CAPEX, $m
  -335
  -349
  -364
  -380
  -397
  -415
  -434
  -453
  -474
  -496
  -520
  -544
  -570
  -597
  -626
  -656
  -688
  -721
  -756
  -793
  -832
  -873
  -916
  -961
  -1,008
  -1,058
  -1,110
  -1,165
  -1,223
  -1,284
New CAPEX, $m
  -193
  -205
  -217
  -230
  -243
  -257
  -272
  -287
  -303
  -319
  -336
  -354
  -373
  -393
  -413
  -435
  -457
  -481
  -506
  -532
  -559
  -587
  -617
  -649
  -682
  -716
  -753
  -791
  -831
  -873
Cash from investing activities, $m
  -528
  -554
  -581
  -610
  -640
  -672
  -706
  -740
  -777
  -815
  -856
  -898
  -943
  -990
  -1,039
  -1,091
  -1,145
  -1,202
  -1,262
  -1,325
  -1,391
  -1,460
  -1,533
  -1,610
  -1,690
  -1,774
  -1,863
  -1,956
  -2,054
  -2,157
Free cash flow, $m
  61
  94
  130
  169
  213
  261
  313
  369
  430
  496
  566
  642
  724
  811
  905
  1,005
  1,112
  1,226
  1,347
  1,476
  1,614
  1,760
  1,915
  2,080
  2,255
  2,441
  2,638
  2,846
  3,068
  3,302
Issuance/(repayment) of debt, $m
  175
  189
  200
  212
  224
  237
  250
  264
  279
  294
  310
  326
  343
  362
  381
  400
  421
  443
  466
  490
  515
  541
  569
  598
  628
  660
  693
  728
  765
  804
Issuance/(repurchase) of shares, $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 from financing (excl. dividends), $m  
  175
  189
  200
  212
  224
  237
  250
  264
  279
  294
  310
  326
  343
  362
  381
  400
  421
  443
  466
  490
  515
  541
  569
  598
  628
  660
  693
  728
  765
  804
Total cash flow (excl. dividends), $m
  237
  282
  330
  381
  437
  498
  563
  633
  709
  789
  876
  969
  1,068
  1,173
  1,286
  1,405
  1,533
  1,669
  1,813
  1,966
  2,128
  2,301
  2,484
  2,678
  2,883
  3,101
  3,331
  3,575
  3,833
  4,106
Retained Cash Flow (-), $m
  -82
  -88
  -93
  -98
  -104
  -110
  -116
  -123
  -129
  -136
  -144
  -151
  -159
  -168
  -177
  -186
  -195
  -206
  -216
  -227
  -239
  -251
  -264
  -277
  -291
  -306
  -322
  -338
  -355
  -373
Prev. year cash balance distribution, $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 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
  154
  195
  237
  283
  333
  388
  447
  511
  579
  653
  732
  817
  908
  1,005
  1,109
  1,220
  1,337
  1,463
  1,597
  1,739
  1,889
  2,050
  2,220
  2,400
  2,592
  2,794
  3,009
  3,237
  3,478
  3,733
Discount rate, %
  6.60
  6.93
  7.28
  7.64
  8.02
  8.42
  8.84
  9.29
  9.75
  10.24
  10.75
  11.29
  11.85
  12.45
  13.07
  13.72
  14.41
  15.13
  15.88
  16.68
  17.51
  18.39
  19.31
  20.27
  21.29
  22.35
  23.47
  24.64
  25.87
  27.17
PV of cash for distribution, $m
  145
  170
  192
  211
  227
  239
  247
  251
  251
  246
  238
  226
  212
  195
  176
  156
  136
  116
  97
  80
  64
  50
  38
  29
  21
  15
  10
  7
  4
  3
Current shareholders' claim on cash, %
  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, SkyWest Airlines, Inc. (SkyWest Airlines) and ExpressJet Airlines, Inc. (ExpressJet), operates regional airline operations in the United States. The Company's segments include SkyWest Airlines, ExpressJet and SkyWest Leasing. The SkyWest Airlines segment provides regional jet service to airports primarily located in the Midwestern and Western United States, as well as Mexico and Canada. The ExpressJet segment provides regional jet service to airports primarily located in the Eastern and Midwestern United States, as well as Mexico, Canada and the Caribbean. The SkyWest Leasing segment includes its E175 aircraft ownership business. As of December 31, 2016, the Company offered scheduled passenger service with approximately 3,160 daily departures to destinations in the United States, Canada, Mexico and the Caribbean. The Company's flights are operated as Delta Connection, United Express, American Eagle or Alaska Airlines.

FINANCIAL RATIOS  of  SkyWest, Inc. (SKYW)

Valuation Ratios
P/E Ratio -16.5
Price to Sales 0.9
Price to Book 2
Price to Tangible Book
Price to Cash Flow 5.3
Price to Free Cash Flow -4.1
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
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 $3222 million for the last fiscal year's total revenue generated by SkyWest, Inc.. The default revenue input number comes from 0001 income statement of SkyWest, Inc.. 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 4.2% 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 6.6%, whose default value for SKYW is calculated based on our internal credit rating of SkyWest, Inc., 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, Inc..
    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 17.5%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $2235 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 5.4% for SkyWest, Inc..

Corporate tax rate of 27% is the nominal tax rate for SkyWest, Inc.. 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 142.6%.

Life of production assets of 13.7 years is the average useful life of capital assets used in SkyWest, Inc. 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 -7.5%. 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 - $1964.281 million for SkyWest, Inc. - 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 51.570 million for SkyWest, Inc. 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, Inc. at the current share price and the inputted number of shares is $2.7 billion.

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