Why Southwest Airlines (LUV) Stock Is Down Today

NEW YORK (TheStreet) -- Southwest Airlines  (LUV) fell along with other airline stocks on Tuesday after Air France reduced its full-year earnings outlook due to over-capacity.

The Paris-based company, which is also one of Europe's largest airlines, now expects full-year earnings of $3 billion, down from the $3.4 billion it had previously forecast. Air France cited increasing competition on North American and Asian routes, lesser cargo demand and the fact that Venezuela is blocking repatriation of revenue for airlines.

Southwest was down 1.91% to $26.65 at 2:26 p.m. More than 9.5 million shares had changed hands, compared to the average volume of 6,116,450.

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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 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 analysis by TheStreet Ratings Team goes as follows:

  • The revenue growth significantly trails the industry average of 45.9%. 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 ($1.55 versus $1.06).
  • Powered by its strong earnings growth of 175.00% and other important driving factors, this stock has surged by 116.12% 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 62.95%.
  • 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.
  • You can view the full analysis from the report here: LUV Ratings Report

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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.

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