NEW YORK (TheStreet) -- Southwest Airlines (LUV) was falling 2.55% to $21.22 on Thursday despite the fact that the company announced an increase in net income in its fourth-quarter report.
Southwest reported a net income of $212 million for the quarter, up $78 million from the same period one year earlier. The figure surpassed Wall Street's expectations and the company forecast an increase in first-quarter revenue compared to one year earlier.
The airline burned the same amount of fuel but paid 30 cents less per gallon compared to one year earlier, which allowed the Dallas-based company to save $138 million, or 9.2, on fuel. Average fares on a Southwest flight rose 5.4%, or $8, to $156.05 each way.
Southwest CEO Gary Kelly said in the company's statement that traffic slowed early in the fourth quarter because of the federal government's partial shutdown, but traffic and revenue recovered in November and December, a trend that should continue into January as travel bookings are solid for the first quarter.
TheStreet Ratings team rates Southwest as a "buy" with a ratings score of B. TheStreet Ratings Team has this to say about their recommendation:
"We rate SOUTHWEST AIRLINES (LUV) a BUY. This is driven by a few notable strengths, 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, compelling growth in net income, revenue growth, largely solid financial position with reasonable debt levels by most measures and solid stock price performance. 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:
- 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 year. We feel that this trend should continue. During the past fiscal year, SOUTHWEST AIRLINES increased its bottom line by earning $0.56 versus $0.24 in the prior year. This year, the market expects an improvement in earnings ($1.07 versus $0.56).
- The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Airlines industry. The net income increased by 1518.8% when compared to the same quarter one year prior, rising from $16.00 million to $259.00 million.
- Despite its growing revenue, the company underperformed as compared with the industry average of 14.8%. Since the same quarter one year prior, revenues slightly increased by 5.5%. Growth in the company's revenue appears to have helped boost the earnings per share.
- The current debt-to-equity ratio, 0.41, 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 0.68, displays a potential problem in covering short-term cash needs.
- Powered by its strong earnings growth of 1750.00% and other important driving factors, this stock has surged by 90.24% 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.
- You can view the full analysis from the report here: LUV Ratings Report