SKYW vs. LUV: Which Stock Is the Better Value Option?

Investors interested in stocks from the Transportation - Airline sector have probably already heard of SkyWest (SKYW) and Southwest Airlines (LUV). But which of these two stocks is more attractive to value investors? We'll need to take a closer look to find out.

Everyone has their own methods for finding great value opportunities, but our model includes pairing an impressive grade in the Value category of our Style Scores system with a strong Zacks Rank. The Zacks Rank is a proven strategy that targets companies with positive earnings estimate revision trends, while our Style Scores work to grade companies based on specific traits.

SkyWest and Southwest Airlines are sporting Zacks Ranks of #2 (Buy) and #3 (Hold), respectively, right now. The Zacks Rank favors stocks that have recently seen positive revisions to their earnings estimates, so investors should rest assured that SKYW has an improving earnings outlook. But this is just one piece of the puzzle for value investors.

Value investors also tend to look at a number of traditional, tried-and-true figures to help them find stocks that they believe are undervalued at their current share price levels.

The Style Score Value grade factors in a variety of key fundamental metrics, including the popular P/E ratio, P/S ratio, earnings yield, cash flow per share, and a number of other key stats that are commonly used by value investors.

SKYW currently has a forward P/E ratio of 11.20, while LUV has a forward P/E of 28.96. We also note that SKYW has a PEG ratio of 1.28. This popular metric is similar to the widely-known P/E ratio, with the difference being that the PEG ratio also takes into account the company's expected earnings growth rate. LUV currently has a PEG ratio of 4.83.

Another notable valuation metric for SKYW is its P/B ratio of 1.7. The P/B ratio is used to compare a stock's market value with its book value, which is defined as total assets minus total liabilities. For comparison, LUV has a P/B of 2.03.

These are just a few of the metrics contributing to SKYW's Value grade of A and LUV's Value grade of C.

SKYW stands above LUV thanks to its solid earnings outlook, and based on these valuation figures, we also feel that SKYW is the superior value option right now.

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This article originally published on Zacks Investment Research (zacks.com).

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