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Southwest Airlines (LUV) Showing Signs Of Being Water-Logged And Getting Wetter

Editor's Note: Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of TheStreet, Inc. or any of its contributors including Jim Cramer or Stephanie Link.

Trade-Ideas LLC identified Southwest Airlines ( LUV) as a "water-logged and getting wetter" (weak stocks crossing below support with today's range greater than 200%) candidate. In addition to specific proprietary factors, Trade-Ideas identified Southwest Airlines as such a stock due to the following factors:

  • LUV has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $160.8 million.
  • LUV has traded 1.6 million shares today.
  • LUV traded in a range 208.9% of the normal price range with a price range of $0.93.
  • LUV traded below its daily resistance level (quality: 19 days, meaning that the stock is crossing a resistance level set by the last 19 calendar days. The resistance price is defined by the Price - $0.01 at the time of the signal).

Stocks matching the 'Water-Logged and Getting Wetter' criteria are worthwhile stocks to watch for a variety of factors including historical back testing and volatility. Trade-Ideas targets these opportunities because the stock is exhibiting an unusual behavior while displaying negative price action. In this case, the stock crossed an important inflection point; namely, "support" while at the same time the range of the stock's movement in price is twice its normal size. This large range foreshadows a possible continuation as the stock moves lower.

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More details on LUV:

Southwest Airlines Co. operates passenger airlines that provide scheduled air transportation services in the United States. As of December 31, 2012, the company operated 694 aircraft, including 606 Boeing 737 aircraft and 88 Boeing 717 aircraft. The stock currently has a dividend yield of 0.9%. LUV has a PE ratio of 22.9. Currently there are 9 analysts that rate Southwest Airlines a buy, 2 analysts rate it a sell, and 2 rate it a hold.

The average volume for Southwest Airlines has been 6.0 million shares per day over the past 30 days. Southwest Airlines has a market cap of $18.9 billion and is part of the services sector and transportation industry. The stock has a beta of 0.97 and a short float of 2.4% with 2.34 days to cover. Shares are up 43% year-to-date as of the close of trading on Wednesday.

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TheStreetRatings.com Analysis:

TheStreet Quant Ratings rates Southwest Airlines as a buy. 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 ratings report include:

  • The revenue growth significantly trails the industry average of 42.0%. Since the same quarter one year prior, revenues slightly increased by 2.0%. 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 ($1.50 versus $1.06).
  • Powered by its strong earnings growth of 175.00% and other important driving factors, this stock has surged by 100.14% 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 $1,119.00 million or 13.83% when compared to the same quarter last year. Despite an increase in cash flow, SOUTHWEST AIRLINES's cash flow growth rate is still lower than the industry average growth rate of 61.46%.
  • The current debt-to-equity ratio, 0.39, 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 0.61, displays a potential problem in covering short-term cash needs.

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