NEW YORK (TheStreet) -- Southwest Airlines (LUV - Get Report) was falling 1.96% to $20.54 on Monday morning despite the airline's announcement that it plans to add nonstop flights from Dallas to New York and 14 other cities.
The company announced it will begin the flights to five cities on Oct. 13, when federal limits on Dallas Love Field end, and then to 10 more cities on Nov. 2. The restrictions are part of a 1980 federal law known as the Wright Amendment, which was designed to protect nearby Dallas-Fort Worth International Airport by banning planes larger than 56 seats from flying anywhere except a few other cities in Texas and nearby states from Love Field. This meant that the routes to New York, Atlanta and other such cities from Love Field were off-limits to Southwest's Boeing 737 jets.
Southwest's maneuver could allow it to compete directly with other, larger airlines such as Delta Air Lines (DAL) and American Airlines Group (AAL). Southwest will also compete against a similar service from American Airlines Group at Dallas-Fort Worth.
TheStreet Ratings team rates SOUTHWEST AIRLINES as a "buy" with a ratings score of B+. TheStreet Ratings Team has this to say about their recommendation:
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"We rate SOUTHWEST AIRLINES (LUV) a BUY. This is driven by several positive factors, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its impressive record of earnings per share growth, revenue growth, largely solid financial position with reasonable debt levels by most measures, solid stock price performance and good cash flow from operations. We feel these strengths outweigh the fact that the company shows low profit margins."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- LUV's revenue growth trails the industry average of 20.0%. Since the same quarter one year prior, revenues slightly increased by 6.1%. Growth in the company's revenue appears to have helped boost the earnings per share.
- SOUTHWEST AIRLINES reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, SOUTHWEST AIRLINES increased its bottom line by earning $1.06 versus $0.56 in the prior year. This year, the market expects an improvement in earnings ($1.35 versus $1.06).
- Powered by its strong earnings growth of 172.72% and other important driving factors, this stock has surged by 88.79% over the past year, outperforming the rise in the S&P 500 Index during the same period. We feel that the stock's sharp appreciation over the last year has driven it to a price level which is now somewhat expensive compared to the rest of its industry. The other strengths this company shows, however, justify the higher price levels.
- Net operating cash flow has increased to $302.00 million or 30.73% when compared to the same quarter last year. Despite an increase in cash flow, SOUTHWEST AIRLINES's average is still marginally south of the industry average growth rate of 34.36%.
- The current debt-to-equity ratio, 0.38, is low and is below the industry average, implying that there has been successful management of debt levels. Despite the fact that LUV's debt-to-equity ratio is low, the quick ratio, which is currently 0.63, displays a potential problem in covering short-term cash needs.
- You can view the full analysis from the report here: LUV Ratings Report