NEW YORK (TheStreet) -- Shares of Southwest Airlines Co. (LUV) are down by 1.43% to $44.70 in pre-market trading on Wednesday morning, after it was announced that 128 planes belonging to the airliner have been grounded as the company failed to inspect the aircrafts' backup hydraulic system, which is used to control the rudder if the main system fails, CBSnews.com reports.
Southwest had to cancel close to 80 flights, leaving one fifth of its fleet grounded while the inspections are taking place. Another 19 flights are expected to be canceled, however the airline believes it will have most of the inspections completed before the morning is over.
On Tuesday night the FAA said it would agree to let the Southwest resume flights while the inspections were taking place. This isn't the first time the FAA has been notified of safety issues by Southwest.
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Over the summer the FAA was looking to fine Southwest $12 million for not complying with the safety repairs for its 737s.
In 2009 the company was fined for failing to inspect a number of planes for cracks in the fuselage. In 2011 the FAA order detailed inspections of Southwest's older 737s after a five-foot hole exploded open on one of the planes in mid-flight forcing an emergency landing, CBSnews.com added.
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Separately, 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 solid stock price performance, revenue growth, largely solid financial position with reasonable debt levels by most measures and notable return on equity. We feel these strengths outweigh the fact that the company shows weak operating cash flow."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- LUV's revenue growth trails the industry average of 22.9%. Since the same quarter one year prior, revenues slightly increased by 4.5%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
- Compared to its closing price of one year ago, LUV's share price has jumped by 108.87%, exceeding the performance of the broader market during that same time frame. Turning to the future, naturally, any stock can fall in a major bear market. However, in almost any other environment, the stock should continue to move higher despite the fact that it has already enjoyed nice gains in the past year.
- SOUTHWEST AIRLINES's earnings per share declined by 6.7% in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, SOUTHWEST AIRLINES increased its bottom line by earning $1.65 versus $1.06 in the prior year. This year, the market expects an improvement in earnings ($3.50 versus $1.65).
- The current debt-to-equity ratio, 0.40, 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 0.57, displays a potential problem in covering short-term cash needs.
- Current return on equity exceeded its ROE from the same quarter one year prior. This is a clear sign of strength within the company. Compared to other companies in the Airlines industry and the overall market on the basis of return on equity, SOUTHWEST AIRLINES has underperformed in comparison with the industry average, but has exceeded that of the S&P 500.
- You can view the full analysis from the report here: LUV Ratings Report