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TheStreet Open House

SkyWest's Cash Prompts Upgrade

Stocks in this article: SKYWXJTCALUAUADALAAIPNCL

NEW YORK ( TheStreet) -- Shares of SkyWest (SKYW) jumped Tuesday after Avondale Partners lifted its rating on the stock, giving the St. George, Utah-based company kudos for its cash holdings.

Also citing a bullish view of SkyWest's August deal to acquire ExpressJets Holdings (XJT), analyst Bob McAdoo lifted his rating on the stock to market outperform and boosted his 12-month price target to $16 from $14. McAdoo had been at market perform on the shares since February 2009.

The stock responded well, closing up 5.3%, or 64 cents, to $12.74. Volume of around 450,000 was slightly ahead of the issue's trailing three-month daily average of 433,000. Based on Monday's close at $12.10, the stock was down nearly 29% year-to-date, but it had bounced about 6% since scraping a 52-week low of $11.38 on July 7 prior to Tuesday's run-up.

McAdoo's upgrade looks mainly motivated by the aforementioned cash. He likes both how much SkyWest has -- around $750 million with the XpressJets' deal still pending completion -- and what the company is doing with it.

"SKYW has been using its cash to create growth in a generally shrinking industry," he told clients in a research note. "Excluding its surplus cash, SKYW's market cap is just over 2 times its earnings."

XpressJets has been a loss maker for the past three years and that isn't expected to change in calendar 2010, but McAdoo sees the deal for SkyWest, currently the biggest regional jet operator, to acquire its next largest rival as a relative bargain with numerous strategic benefits.

In particular, he thinks the combined company "will now own center stage" for regional jet operations for the combined entity resulting from the Continental (CAL)- United (UAUA) hook-up that received antitrust clearance late last week.

Bringing Continental into the fold through the XpressJets' deal is big for SkyWest, as its results have been held back for the past two years by major partner Delta Airlines's (DAL) flight reductions. Of the 452 aircraft in SkyWest's fleet as of June 30, a total of 244 were assigned to Delta, compared to 204 to United and the remaining four to AirTran Holdings (AAI).

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