Company name Southwest Airlines Co
Stock ticker LUV
Live stock price [stckqut]LUV[/stckqut]
P/E compared to competitors Fair

MANAGEMENT EXECUTION

Employee productivity Fair
Sales growth Poor
EPS growth Good
P/E growth Fair
EBIT growth Good

ANALYSIS

Confident Investor Rating Fair
Target stock price (TWCA growth scenario) $42.14
Target stock price (averages with growth) $63.74
Target stock price (averages with no growth) $49.44
Target stock price (manual assumptions) $42.64

The following company description is from Google Finance: http://www.google.com/finance?q=luv

Southwest Airlines Co. operates Southwest Airlines and AirTran Airways, passenger airlines that provide scheduled air transportation in the United States and near-international markets. As of December 31, 2012, the total fleet operated by Southwest and AirTran combined consisted of 694 aircraft, including 606 Boeing 737s and 88 Boeing 717s. Southwest principally provides point-to-point, rather than hub-and-spoke, service. AirTran principally provides hub-and-spoke, rather than point-to-point, service, with approximately half of AirTran’s flights originating or terminating at its base of operation in Atlanta, Georgia. AirTran also serves a number of markets with non-stop service from smaller bases of operation in Baltimore, Maryland; Milwaukee, Wisconsin; and Orlando, Florida. In December 2013, Southwest Airlines Co acquired 12 takeoff and landing slots at New York’s LaGuardia Airport being divested by American Airlines as part of its merger with US Airways.

 

Confident Investor comments: At this time, I think that a Confident Investor can cautiously invest in Southwest Airlines Co as long as the price is correct. Most of the fundamentals of this company are good but there are some concerns.

If you would like to understand how to evaluate companies like I do on this site, please read my book, The Confident Investor. You can review the best companies that I have found (and I probably invest my own money in most of these companies) in my Watch List.

How was this analysis of Southwest Airlines Co calculated?

For owners of my book, “The Confident Investor” I offer the following analysis (you must be logged in to this site as a book owner in order to see the following analysis). If you have registered and cannot see the balance of this article, make sure you are logged in and refresh your browser.
[s2If current_user_can(access_s2member_level1)]

In order to assist you in using the techniques of this book, the values that I used when calculating the Manual pricing above were:

  • Stock price at the time of the calculation: $27.17
  • Growth: 0.2
  • Current EPS (TTM): $1.2
  • P/E: 23
  • Future EPS Calc: $2.98
  • Future Stock Price Calc: $68.67
  • Target stock price: $42.64

I hope that this makes you a better investor. [/s2If]

Company name Southwest Airlines Co.
Stock ticker LUV
Live stock price [stckqut]LUV[/stckqut]
P/E compared to competitors Good
MANAGEMENT EXECUTION
Employee productivity Poor
Sales growth Poor
EPS growth Poor
P/E growth Poor
EBIT growth Poor
ANALYSIS
Confident Investor Rating Poor
Target stock price (TWCA growth scenario) $7.15
Target stock price (averages with growth) $8.25
Target stock price (averages with no growth) $8.38
Target stock price (manual assumptions) $8.72

Confident Investor comments: At this price and at this time, I do not think that a Confident Investor can confidently invest in this stock. Not only are nearly all of the metrics bad for this company, but their decision to purchase another airline violates my principle of investing in companies that make a major acquisition or divestiture. Major acquisitions can be good in the long term but too often in the short term the process diverts the attention of executive management. This is likely to be the case for Southwest as they have not made that many acquisitions in the past. I don’t say this too much on this site but I suggest that you sell this stock if you currently own it.