Sky Harbour Misses by a Penny, Cuts EBITDA Target, Stock Rises Anyway

Sky Harbour Group reported a quarterly loss of $0.11 per share on Tuesday, missing the consensus estimate of ($0.10) by one cent, according to Zacks. Revenue of $8.36 million fell well short of the $10.55 million analysts expected, and the market rewarded the company anyway.

The stock opened at $11.29 on Thursday, up 6.7%, against a 50-day moving average of $9.86 and a 200-day average of $9.80. Sky Harbour has traded between a twelve-month low of $8.22 and a high of $11.70, and it carries a market capitalization of $865.42 million. A negative P/E ratio of -94.12 and a beta (a measure of volatility relative to the market) of 1.40 complete the picture of a company priced on promise rather than present earnings. That is a familiar arrangement in aviation infrastructure, though seldom stated so bluntly by the arithmetic.

What drove the quarter?

Third-quarter revenue grew 45% year over year and 7% sequentially, while completed and in-progress construction reached a record $439 million. Management attributed the growth to new campus openings and to higher occupancy and rents across the existing portfolio.

The company lowered its year-end Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) run-rate outlook to break-even through $4 million, down from a prior range of $4 million to $6 million. The culprits were delayed revenue at Addison 2 and startup costs at Bradley. Q3 Adjusted EBITDA came in at approximately negative $0.5 million, as operating expenses ran ahead of campus openings.

The balance sheet offers some cushion:

• Nearly $200 million held in cash and Treasury securities
• Roughly $130 million available under a committed bank facility
• Debt that management described as fixed-rate
• Potential proceeds above $90 million from Public Warrant exercises (a warrant being the right to buy shares at a set price)

Where is the growth coming from?

The pipeline expanded on several fronts. Sky Harbour added Van Nuys to its airport pipeline and enlarged its plans at Dulles. It also announced three third-party construction contracts representing about $38 million in revenue, which management said its in-house steel manufacturing and general contracting capacity could support. It did not disclose the expected profitability of that work. Readers may draw their own conclusions about a construction business announced without a margin attached.

Leasing remains the harder problem. The company has roughly 826,000 square feet to fill, and management conceded it expanded the leasing team more slowly than it should have. Denver and Phoenix are leasing more slowly than hoped, while steel and labor inflation press on construction costs.

How did the profitability metrics look?

The quarter produced a return on equity of 4.76% and a net margin of 7.34%. Both figures are respectable in isolation. They sit, however, beside a revenue line that missed expectations by about $2.2 million, and an EBITDA outlook that moved down rather than up.

What do the analysts say?

Ratings activity has skewed toward the constructive end, with two upgrades and two reiterations:

• Weiss Ratings raised the shares from "sell (d+)" to "hold (c-)" on Wednesday
• Wall Street Zen moved from "strong sell" to "sell" on Sunday, September 20
• Roth Capital reiterated a "buy" with a $12.50 target on Tuesday, August 18
• BTIG Research repeated a "buy" with a $13.00 objective on Thursday, October 22

One analyst rates the stock Strong Buy, two assign Buy and one assigns Hold. MarketBeat records an average rating of "Buy" and a consensus price target of $12.75, roughly 13% above Thursday's open.

Are insiders buying?

They are, in modest quantities. CFO Francisco Gonzalez purchased 3,850 shares on Friday, October 2 at an average of $9.25, a transaction of $35,612.50 that lifted his direct holding to 718,538 shares, valued near $6.6 million and up 0.54% in ownership terms. Director Andrew Gessow acquired 5,000 shares on Friday, August 14 at $10.85, totaling $54,250.00 and raising his position 27.92% to 22,910 shares worth about $248,574. Both purchases appear in Securities and Exchange Commission filings.

Across the last quarter, insiders acquired 13,950 shares worth $139,568, and company insiders own 40.70% of the stock. The absolute sums are small. The alignment, at least, is not in doubt.

What is Sky Harbour, precisely?

The company develops, owns and operates hangar campuses for business aviation in the United States, providing private aircraft owners and operators with dedicated hangar space and related services. It markets its campuses as "Home Base Operator" facilities, a deliberate contrast with traditional fixed-base operators that mainly serve transient aircraft. The business spans site selection, development, leasing and management of hangar facilities.

The verdict, for now: growth is real, cash is ample, and the leasing clock is ticking. The market has chosen to price the first two. The third will decide whether that was sensible.