The discount airline will freeze the size of its jet fleet through 2015, a one-year extension, as the company focuses on increasing its return on invested capital, Bloomberg reports.
That's a part of Southwest's move to broaden its appeal to investors, along with stock buybacks and continuing its dividend.
Yesterday, the airline was upgraded to "buy" from "hold" at Argus.
TheStreet Ratings team rates SOUTHWEST AIRLINES as a Buy with a ratings score of A. TheStreet Ratings Team has this to say about their recommendation:
"We rate SOUTHWEST AIRLINES (LUV) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its impressive record of earnings per share growth, revenue growth, good cash flow from operations, solid stock price performance and largely solid financial position with reasonable debt levels by most measures. 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 25.1%. 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 ($1.40 versus $1.06).
- Net operating cash flow has increased to $289.00 million or 25.10% when compared to the same quarter last year. In addition, SOUTHWEST AIRLINES has also vastly surpassed the industry average cash flow growth rate of -48.56%.
- Powered by its strong earnings growth of 172.72% and other important driving factors, this stock has surged by 77.37% over the past year, outperforming the rise in the S&P 500 Index during the same period. Looking ahead, the stock's sharp rise over the last year has already helped drive it to a level which is relatively expensive compared to the rest of its industry. We feel, however, that other strengths this company displays justify these higher price levels.
- 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