SkyWest stock nosedive 'not rational'

How low will SkyWest Inc.'s stock go before it pulls out of a nosedive that wiped out more than half its value since February?

The stock fell below $7 a share on Friday and has drifted lower this week. On Tuesday, SkyWest closed at $6.360 a share, down 10 cents. Over the last four months a pattern has been set. For every day the stock rises, it falls two days.

Analysts who track the regional airline business say the protracted slide isn't SkyWest's fault. Instead, they say, Wall Street undervalues the role that regional carriers play. Add in a slew of recent bankruptcies — Mesa Airlines, American Eagle and Pinnacle — and its easy to see that there isn't a lot of confidence in the industry these days.

Unlike its rivals, nobody thinks the St. George-based airline is headed over a financial cliff. The company's management is widely respected and it sits on a $583 million cash reserve. And while it lost $27.3 million in 2011, the company is moving back toward the black. The company's $700,000 first-quarter loss was smaller than expected, and analysts surveyed by Thompson Reuters expect the airline to post a profit for the quarter ending June 30.

Still, Wall Street isn't convinced, and SkyWest's stock took another step downward on Tuesday, while the Nasdaq composite index rose 18.10 points, or 0.7 percent.

"This," said Mike Kraupp, the airline's chief financial officer, "is another good example of SkyWest being painted with a broad brush."

Mike Boyd, a Colorado-based aviation consultant, holds SkyWest in high esteem. If after several bankruptcies and consolidations only one regional airline is left standing, it will be SkyWest, he said.

"It is a shrinking industry, there's no doubt about that,'' Boyd said. ``But there's always going to be a demand for what [regional airlines] do, and [SkyWest] is going to the ones that are doing it."

Rather than blaming the company for its dismal stock price, Boyd heaps criticism on securities analysts whose opinions about companies help clients make investment decisions. Many, Boyd asserts, are unqualified.

"This is someone who wouldn't know a flight coupon from a speeding ticket," he said. "What you have is, suddenly, this: 'We all know regional airlines are not a good investment.' But when you ask why, well, these analysts wouldn't know.

"So all this has to do with is just analysts' whims," Boyd said.

Industry analyst Robert Mann of R.W. Mann and Co. in Port Washington, N.Y., believes that SkyWest's stock slide is rooted in a widespread misunderstanding of the role of regionals. Investors apparent don't realize that feeder airlines like SkyWest fly more than half of all domestic flights on behalf of their major partners, usually from small cities to big airline hubs.

"I think [the problems that regionals face] ends when people realize that there is a continuing role [for regional carriers], and that the industry as a group is terrifically oversold," Mann said.

"One could argue that there were points, especially in the late 1990s, and possibly through the middle of the last decade, when the industry was way overvalued because they were making double-digit net margins and high double-digit operating margins,'' he said. ``What hasn't changed is the nature of networks, which is that more than half of the departures are regionally flown."

Indeed, as recently as 2007, SkyWest posted a $159 million profit flying as Delta Connection for Delta Air Lines and as United Express for United Airlines. Back then, SkyWest fetched as much as $29 a share.

So far, SkyWest shareholders haven't rebelled. Kraupp said an increasing percentage of the company's investors are long-term owners are more "disciplined" than shareholders who move in and out of the stock, hoping for quick returns. Kraupp isn't promising that SkyWest's earnings will return to their record levels anytime soon. But they will improve, he said.

"Shareholders can see that our stock has been unfairly discounted in the market,'' Kraupp said, ``and oft-times the market is not a rational decision maker."

pbeebe@sltrib.com

Twitter: @sltribpaul