Southwest Airlines Stock To $36?

Southwest Airlines (LUV) stock has jumped 23% during the past month, and is currently trading at $52.08. Our multi-factor assessment suggests that it may be time to sell LUV stock. We have, overall, a pessimistic view of the stock, and a price of $36 may not be out of reach. We believe there are a few things to fear in LUV stock given its overall Weak operating performance and financial condition. In addition, keeping in mind its High valuation, we think that the stock is Unattractive.

Below is our assessment:

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Let’s get into details of each of the assessed factors but before that, for quick background: With $32 Bil in market cap, Southwest Airlines provides scheduled passenger air transportation services across the United States and nearby international markets, operating a fleet of 728 Boeing 737 aircraft to 121 destinations.

[1] Valuation Looks High

This table highlights how LUV is valued vs broader market. For more details see: LUV Valuation Ratios

[2] Growth Is Moderate

• Southwest Airlines has seen its top line grow at an average rate of 5.7% over the last 3 years
• Its revenues have grown 2.1% from $27 Bil to $28 Bil in the last 12 months
• Also, its quarterly revenues grew 7.4% to $7.4 Bil in the most recent quarter from $6.9 Bil a year ago.

This table highlights how LUV is growing vs broader market. For more details see: LUV Revenue Comparison

[3] Profitability Appears Very Weak

• LUV last 12 month operating income was $428 Mil representing operating margin of 1.5%
• With cash flow margin of 6.6%, it generated nearly $1.8 Bil in operating cash flow over this period
• For the same period, LUV generated nearly $441 Mil in net income, suggesting net margin of about 1.6%

This table highlights how LUV profitability vs broader market. For more details see: LUV Operating Income Comparison

[4] Financial Stability Looks Very Strong

• LUV Debt was $6.0 Bil at the end of the most recent quarter, while its current Market Cap is $32 Bil. This implies Debt-to-Equity Ratio of 18.9%
• LUV Cash (including cash equivalents) makes up $3.2 Bil of $29 Bil in total Assets. This yields a Cash-to-Assets Ratio of 11.1%

[5] Downturn Resilience Is Very Weak

LUV has fared much worse than the S&P 500 index during various economic downturns. We assess this based on both (a) how much the stock fell and, (b) how quickly it recovered.

2022 Inflation Shock

• LUV stock fell 65.3% from a high of $64.10 on 6 April 2021 to $22.23 on 31 October 2023 vs. a peak-to-trough decline of 25.4% for the S&P 500.
• The stock is yet to recover to its pre-Crisis high
• The highest the stock has reached since then is $54.80 on 18 February 2026 , and currently trades at $52.08

 
2020 Covid Pandemic

• LUV stock fell 59.2% from a high of $58.54 on 13 February 2020 to $23.87 on 15 May 2020 vs. a peak-to-trough decline of 33.9% for the S&P 500.
• However, the stock fully recovered to its pre-Crisis peak by 24 February 2021

 
2008 Global Financial Crisis

• LUV stock fell 69.8% from a high of $16.60 on 8 August 2007 to $5.01 on 5 March 2009 vs. a peak-to-trough decline of 56.8% for the S&P 500.
• However, the stock fully recovered to its pre-Crisis peak by 24 October 2013

But the risk is not limited to major market crashes. Stocks fall even when markets are good – think events like earnings, business updates, outlook changes. Read LUV Dip Buyer Analyses to see how the stock has recovered from sharp dips in the past.

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