Southwest Airlines (LUV) Stock Benefits From Slumping Oil Prices

NEW YORK (TheStreet) -- Southwest Airlines Co. (LUV)  shares are higher 1.02% to $42.39 Tuesday afternoon largely due to falling oil prices. 

Crude oil (WTI) is slumping 1.47% to $36,22 per barrel and Brent crude is declining 1.91% to $36.52 per barrel, according to the CNBC.com index.

Oil futures were tumbling on the stronger dollar and worries about China's economic status. 

Chinese stock markets dropped 7% on Monday causing the country's central bank to take action by injecting $20 billion in short-term funds into the its financial system. This was to help calm investors nerves following Monday's sharp stock selloff, the Wall Street Journal reports.

Separately, the company last week announced that it reached a deal with Transport Workers Union Local 555, a union that represents over 12,000 employees.

Recently, TheStreet Ratings objectively rated this stock according to its "risk-adjusted" total return prospect over a 12-month investment horizon. Not based on the news in any given day, the rating may differ from Jim Cramer's view or that of this articles's author. TheStreet Ratings has this to say about the recommendation:

We rate SOUTHWEST AIRLINES as a Buy with a ratings score of A. 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, good cash flow from operations, expanding profit margins and largely solid financial position with reasonable debt levels by most measures. Although the company may harbor some minor weaknesses, we feel they are unlikely to have a significant impact on results.

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

  • The revenue growth came in higher than the industry average of 5.5%. Since the same quarter one year prior, revenues slightly increased by 7.2%. 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 ($3.52 versus $1.65).
  • Net operating cash flow has significantly increased by 247.91% to $835.00 million when compared to the same quarter last year. In addition, SOUTHWEST AIRLINES has also vastly surpassed the industry average cash flow growth rate of 133.46%.
  • 39.41% is the gross profit margin for SOUTHWEST AIRLINES which we consider to be strong. It has increased from the same quarter the previous year. Despite the strong results of the gross profit margin, LUV's net profit margin of 11.34% significantly trails the industry average.
  • The current debt-to-equity ratio, 0.38, 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 0.50, displays a potential problem in covering short-term cash needs.
  • You can view the full analysis from the report here: LUV

More from Markets

Starbucks Surprises Wall Street With U.S. Sales Up a Paltry 2%

Starbucks Surprises Wall Street With U.S. Sales Up a Paltry 2%

Dow Jumps 238 Points as S&P 500, Nasdaq Also Climb

Dow Jumps 238 Points as S&P 500, Nasdaq Also Climb

Why Nashville, Denver, LA Should Reconsider Bids for Amazon HQ2

Why Nashville, Denver, LA Should Reconsider Bids for Amazon HQ2

3 Hot Reads From TheStreet's Top Premium Columnists

3 Hot Reads From TheStreet's Top Premium Columnists

Jim Cramer: Visa Is a Technology Company That Masquerades as a Financial Company

Jim Cramer: Visa Is a Technology Company That Masquerades as a Financial Company