Market Inference Overview -- LUV Stock

Southwest Airlines Company logged a -0.3% change during today's morning session, and is now trading at a price of $26.48 per share.

Southwest Airlines Company returned losses of -17.0% last year, with its stock price reaching a high of $40.38 and a low of $26.48. Over the same period, the stock underperformed the S&P 500 index by -33.0%. As of April 2023, the company's 50-day average price was $31.99. Southwest Airlines Co. operates as a passenger airline company that provide scheduled air transportation services in the United States and near-international markets. Based in Dallas, TX, the large-cap Consumer Discretionary company has 71,299 full time employees. Southwest Airlines Company has offered a 2.0% dividend yield over the last 12 months.

Low Leverage Levels but a Declining EPS Growth Trend:

2018-02-07 2019-02-05 2020-02-04 2021-02-08 2022-02-07 2023-02-07
Revenue (MM) $21,146 $21,965 $22,428 $9,048 $15,790 $23,814
Gross Margins 35.0% 33.0% 32.0% -7.0% 34.0% 26.0%
Operating Margins 16% 15% 13% -42% 11% 4%
Net Margins 16.0% 11.0% 10.0% -34.0% 6.0% 2.0%
Net Income (MM) $3,357 $2,465 $2,300 -$3,074 $977 $539
Net Interest Expense (MM) -$79 -$62 -$28 -$317 -$454 -$123
Depreciation & Amort. (MM) -$1,218 -$1,201 -$1,219 -$1,255 -$1,272 -$1,351
Earnings Per Share $5.57 $4.29 $4.27 -$5.44 $1.61 $0.89
EPS Growth n/a -22.98% -0.47% -227.4% 129.6% -44.72%
Diluted Shares (MM) 603 574 539 565 607 607
Free Cash Flow (MM) $6,178 $6,869 $4,614 -$1,040 $2,833 $7,736
Capital Expenditures (MM) -$2,249 -$1,976 -$627 -$87 -$511 -$3,946
Net Current Assets (MM) -$10,654 -$11,362 -$10,089 -$10,539 -$7,870 -$9,874
Long Term Debt (MM) $3,320 $2,771 $1,846 $10,111 $10,274 $8,046
Net Debt / EBITDA 0.09 -0.07 -0.34 1.17 -1.6 -1.78

Southwest Airlines Company has low leverage, wider gross margins than its peer group, and decent operating margins with a negative growth trend. However, the firm has declining EPS growth. Finally, we note that Southwest Airlines Company has weak revenue growth and a flat capital expenditure trend, irregular cash flows, and just enough current assets to cover current liabilities.

A Lower P/B Ratio Than Its Sector Average but Trades Above Its Graham Number:

Southwest Airlines Company has a trailing twelve month P/E ratio of 34.0, compared to an average of 22.33 for the Consumer Discretionary sector. Based on its EPS guidance of $2.62, the company has a forward P/E ratio of 12.2. The company doesn't issue forward earnings guidance, and the compound average growth rate of its last 6 years of reported EPS is -25.7%. On this basis, the company's PEG ratio is -1.33, which indicates that its shares are overpriced. In contrast, the market is likely undervaluing Southwest Airlines Company in terms of its equity because its P/B ratio is 1.46 while the sector average is 3.12. The company's shares are currently trading 41.0% above their Graham number. In conclusion, Southwest Airlines Company's impressive cash flow trend, decent P/B ratio, and reasonable use of leverage demonstrate that the company may still be fairly valued — despite its elevated earnings multiple.

Southwest Airlines Company Has an Average Rating of Hold:

The 15 analysts following Southwest Airlines Company have set target prices ranging from $25.0 to $55.0 per share, for an average of $34.72 with a hold rating. As of April 2023, the company is trading -7.9% away from its average target price, indicating that there is an analyst consensus of strong upside potential.

Southwest Airlines Company has an average amount of shares sold short because 4.5% of the company's shares are sold short. Institutions own 78.0% of the company's shares, and the insider ownership rate stands at 0.36%, suggesting a small amount of insider investors. The largest shareholder is Vanguard Group Inc, whose 11% stake in the company is worth $1,747,522,810.

The above analysis is intended for educational purposes only and was performed on the basis of publicly available data. It is not to be construed as a recommendation to buy or sell any security. Any buy, sell, or other recommendations mentioned in the article are direct quotations of consensus recommendations from the analysts covering the stock, and do not represent the opinions of Market Inference or its writers. Past performance, accounting data, and inferences about market position and corporate valuation are not reliable indicators of future price movements. Market Inference does not provide financial advice. Investors should conduct their own review and analysis of any company of interest before making an investment decision.