Southwest Airlines (LUV) Stock Slumping After Releasing May Operational Results

NEW YORK (TheStreet) -- Shares of Southwest Airlines (LUV) were slumping, lower by 5.95% to $33.96 in mid-morning trading Tuesday, after the airline said it started pulling down capacity in order to curb rising seat numbers that have the potential to eat into profit.

Southwest CEO Gary Kelly said the company began taking steps this week to manage 2015 capacity growth.

"With weaker-than-expected economic growth, we continue to evaluate our 2016 capacity plans," said Kelly.

He noted that Southwest plans to limit growth at 6%.

The company reported that capacity, or available seat miles, increased 7.6% from a year ago to 12.1 billion for the month of May.

Southwest flew 10.2 billion revenue passenger miles in May, an 8.5% rise from the 9.4 billion RPMs flown in May of 2014.

The May 2015 load factor was a record 84.4%, compared to the 83.7% from a year ago.

Dallas, Texas-based Southwest Airlines is a passenger airline with scheduled air transportation in both the domestic and near-international markets. 

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 revenue growth, impressive record of earnings per share growth, solid stock price performance, largely solid financial position with reasonable debt levels by most measures and notable return on equity. We feel its strengths outweigh the fact that the company shows low profit margins."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • LUV's revenue growth has slightly outpaced the industry average of 3.2%. Since the same quarter one year prior, revenues slightly increased by 6.0%. 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 $1.65 versus $1.06 in the prior year. This year, the market expects an improvement in earnings ($3.45 versus $1.65).
  • Powered by its strong earnings growth of 200.00% and other important driving factors, this stock has surged by 36.40% 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.
  • Net operating cash flow has increased to $1,452.00 million or 29.75% 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 75.22%.
  • 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 0.57, 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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