Southwest Airlines Co

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LUV : NYSE : Services
$37.48 -0.80 | -2.09%
Today's Range: 37.20 - 37.79
Avg. Daily Volume: 7,157,400
07/27/16 - 4:00 PM ET

Financial Analysis


SOUTHWEST AIRLINES's gross profit margin for the second quarter of its fiscal year 2016 has increased when compared to the same period a year ago. The company managed to grow both sales and net income at a faster pace than the average competitor in its industry this quarter as compared to the same quarter a year ago. SOUTHWEST AIRLINES has weak liquidity. Currently, the Quick Ratio is 0.50 which shows a lack of ability to cover short-term cash needs. The company's liquidity has decreased from the same period last year.

During the same period, stockholders' equity ("net worth") has increased by 9.26% from the same quarter last year. Overall, the key liquidity measurements indicate that the company is in a position in which financial difficulties could develop in the future.

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Income Statement Q2 FY16 Q2 FY15
Net Sales ($mil)5384.05111.0
EBITDA ($mil)1595.01393.0
EBIT ($mil)1297.01143.0
Net Income ($mil)822.0608.0


Balance Sheet Q2 FY16 Q2 FY15
Cash & Equiv. ($mil)3415.03132.0
Total Assets ($mil)22447.021075.0
Total Debt ($mil)3354.02687.0
Equity ($mil)7821.07158.0


Profitability Q2 FY16 Q2 FY15
Gross Profit Margin40.7138.27
EBITDA Margin29.6227.25
Operating Margin24.0922.36
Sales Turnover0.90.9
Return on Assets10.927.49
Return on Equity31.3622.07
Debt Q2 FY16 Q2 FY15
Current Ratio0.570.67
Debt/Capital0.30.27
Interest Expense32.030.0
Interest Coverage40.5338.1


Share Data Q2 FY16 Q2 FY15
Shares outstanding (mil)638.69659.36
Div / share0.10.08
EPS1.280.9
Book value / share12.2510.86
Institutional Own % n/a n/a
Avg Daily Volume6992495.06725130.0

Valuation


BUY. The current P/E ratio indicates a premium compared to an average of 7.24 for the Airlines industry and a significant discount compared to the S&P 500 average of 25.05. For additional comparison, its price-to-book ratio of 3.05 indicates valuation on par with the S&P 500 average of 2.81 and a premium versus the industry average of 2.98. The current price-to-sales ratio is well below the S&P 500 average, but above the industry average. Upon assessment of these and other key valuation criteria, SOUTHWEST AIRLINES proves to trade at a premium to investment alternatives within the industry.


Price/Earnings
1 2 3 4 5
premium   discount
  Price/Cash Flow
1 2 3 4 5
premium   discount
LUV 9.90 Peers 7.24   LUV 6.10 Peers 4.71

Premium. A higher P/E ratio than its peers can signify a more expensive stock or higher growth expectations.

LUV is trading at a significant premium to its peers.

 

Premium. The P/CF ratio, a stock’s price divided by the company's cash flow from operations, is useful for comparing companies with different capital requirements or financing structures.

LUV is trading at a significant premium to its peers.

 
Price/Projected
Earnings
1 2 3 4 5
premium   discount
  Price to
Earnings/Growth
1 2 3 4 5
premium   discount
LUV 9.15 Peers 10.30   LUV 0.48 Peers 1.20

Average. An average price-to-projected earnings ratio can signify an industry neutral stock price and average future growth expectations.

LUV is trading at a valuation on par with its peers.

 

Discount. The PEG ratio is the stock’s P/E divided by the consensus estimate of long-term earnings growth. Faster growth can justify higher price multiples.

LUV trades at a significant discount to its peers.

 
Price/Book
1 2 3 4 5
premium   discount
  Earnings Growth
1 2 3 4 5
lower   higher
LUV 3.05 Peers 2.98   LUV 62.50 Peers 127.41

Average. A lower price-to-book ratio makes a stock more attractive to investors seeking stocks with lower market values per dollar of equity on the balance sheet.

LUV is trading at a valuation on par with its peers.

 

Lower. Elevated earnings growth rates can lead to capital appreciation and justify higher price-to-earnings ratios.

However, LUV is expected to significantly trail its peers on the basis of its earnings growth rate.

 
Price/Sales
1 2 3 4 5
premium   discount
  Sales Growth
1 2 3 4 5
premium   discount
LUV 1.18 Peers 1.02   LUV 6.37 Peers 3.19

Premium. In the absence of P/E and P/B multiples, the price-to-sales ratio can display the value investors are placing on each dollar of sales.

LUV is trading at a premium to its industry on this measurement.

 

Higher. A sales growth rate that exceeds the industry implies that a company is gaining market share.

LUV has a sales growth rate that significantly exceeds its peers.

 

 

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