SkyWest Stock: It MISSED Earnings and JUMPED 8% — Here’s Why We Say BUY

SkyWest, Inc. (SKYW) Q2 2026 — SkyWest (SKYW), the largest US regional airline, reported a rare Q2 2026 EPS MISS: diluted EPS of $2.54 came in below the ~$2.70 estimate and fell ~13% YoY (from $2.91), even as revenue rose ~7% to $1.10B. Net income was $101M vs $120M a year ago. The culprit was specific: aircraft fuel expense more than DOUBLED to $60.6M (from $27.5M) on higher per-gallon cost in the prorate business, plus a ~$9M other-income YoY swing. Yet the stock RALLIED ~8% (to ~$104) — because underneath, the operation improved: block hours +5% YoY / +9% sequential as parked jets reactivate (CRJ550 hrs +73%, CRJ900 +36%), pre-tax income +29% q/q, a funded E175 fleet build toward ~300 by end-2027, debt down to $2.3B, and a fresh +$250M buyback authorization (~$313M available). Our owner-earnings DCF (12% discount) lands fair value near $122 vs ~$104 — ~17% upside. Our call: BUY, 4/5. SkyWest is the largest regional airline in America — the operator that flies the smaller jets you board under the United, Delta, American and Alaska brands, with ~500 aircraft to 240+ destinations. Q2 2026 was a rare miss on the headline: diluted EPS of $2.54 fell short of the ~$2.70 estimate and dropped ~13% YoY, even though revenue rose ~7% to $1.10B. The whole miss traces to two lines: aircraft fuel MORE THAN DOUBLED to $60.6M (from $27.5M) as per-gallon cost jumped in SkyWest's prorate flying (the slice where it, not the major, pays for fuel), plus a ~$9M one-time other-income comparison that didn't repeat. It was a cost-line miss, not a demand miss. Underneath, the business inflected: block hours rose 5% YoY and 9% sequentially as parked regional jets return to service (CRJ550 block hours +73%, CRJ900 +36%) on an easing pilot shortage, and pre-tax income jumped 29% from Q1. The fleet story is the bull case: a funded, largely pre-sold build to ~300 E175s by end-2027 (69 firm deliveries, +33 options, +50 purchase rights), each flying under a long fixed-fee contract. Capital allocation is aggressive and shareholder-friendly: $75M repurchased in Q2, $150M in H1, debt down to $2.3B, and the board just added +$250M to the buyback (~$313M available; no dividend). That's why the stock RALLIED ~8% to ~$104 on a miss. Even leaning conservative and using a demanding 12% discount rate for a leveraged, cyclical airline, our owner-earnings DCF lands fair value near $122 — about 17% above the price — and notably every Wall Street target ($108–$122, ~$115 avg) sits above the price too. The honest catch: the discount is structural (major-airline concentration, $2.3B of aircraft debt, cyclicality, no ticket pricing power), so this is a cheap operator turning a corner, not a franchise that re-rates to the sky. Our call: BUY, 4/5. We're a touch more bullish than the Street's Buy (10 buy / 7 hold; Goldman cut to Neutral this month). Own it for the value and the turn, add on weakness in the low $90s, and watch the partner contracts. Not financial advice. THE CALL: BUY (4/5, A RARE MISS ON A CHEAP, IMPROVING REGIONAL BUYING BACK ITS STOCK — THE MISS WAS FUEL, NOT DEMAND) — base-case value ~$122 vs ~$104 today. What to watch: prorate fuel costs normalizing, the new E175s entering revenue service on schedule, and block hours climbing as more parked jets return — a combination that would drive a clean earnings re-acceleration into 2027 and support a re-rating; the risks to respect are a major partner cutting or renegotiating flying, a travel recession, or trouble financing the aircraft order book, given the customer concentration and $2.3B of aircraft debt Also on YouTube: @ChargedAlpha DISCLAIMER: For informational and educational purposes only. Not financial advice. Do your own research before any investment decision.