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RISK CONCERN
Investment Strategy, Risk Analysis, and Insights by Chartered Professionals
Southwest Airlines Co. (XNYS:LUV) In-Depth Stock/Fundamental/Options Analysis Today
Primary Facts
LUV
Name:
SOUTHWEST AIRLINES CO. (XNYS:LUV)
Sector:
557.00M
Industry:
Airlines
CEO:
Mr. Gary Kelly
Total Employees:
62,333
Our Technological Advancement Rating
Our Rating:
D
Technological advancement compared to industry is -86.35% lower
ANALYSIS OF ALL CRITICAL FACTORS & RISKS RELATED TO THE STOCK & FUNDAMENTAL/LONG-TERM ANALYSIS OF SOUTHWEST AIRLINES CO.(LUV) AS PER DATA ANALYSIS OF LAST 3 YEARS AND COMPARISON WITH COMPETITORS/PEERS, AND AIRLINES INDUSTRY. DATE: 07/09/2022
Primary Targets/Price Insights
Previous Close ($) :
36.74
One Month Price Target:
$36.94
Six Month Price Target :
$37.96
Likely Price in One Year's Time:
Ticker:
$39.17
Likely Trading Range Today Under (Normal Volatility)
$36.55
Price Upper limit ($) :
$36.92
Price Lower limit ($) :
Crash Risk Prep/Key Price Levels (High Volatility/Risk)
Price, as per data analysis, isn't likely to fall below:
Today:
$34.51
This week:
$31.74
This month :
$26.75
Other Primary facts
Market Cap:
21.80B
Market Cap Classification:
Large Cap
Number of Shares
IPO Date:
593.35M
Best/Worst Daily Performance (Last 3+ Years)
Highest Daily Appreciation:
14.44%
-15.11%
Worst Daily Decline:
Our Options Trading Entry Points
Iron Condor entry points for options expiring in 1 week's time
Low risk (<2%) entry points
Buy Call:
Sell Call:
Buy Put:
Sell Put:
$47.11
$42.41
$26.37
$31.07
Medium risk (<10%) entry points
Buy Call
Sell Call
$40.88
Buy Put:
Sell Put:
$39.87
$32.59
$33.61
These entry points can be used for other strategies, such as butterflies, straddles, etc.
Risk-Adjusted returns (Sharpe Ratio) of
LUV
Sharpe Ratio:
-0.72%
Comparison:
LUV, is amongst the top 40% stocks with lowest risk-adjusted returns
Sharpe ratio is 32.00% higher than the industry
& is -131.57% lower than the market/S&P 500 average
Average Returns/Yield of
LUV
Daily returns:
-0.01%
Weekly returns:
-0.06%
Monthly returns:
-0.25%
Yearly returns:
-3.24%
Comparison of returns:
Average annual returns/yield (last 3 years) is -8.08% below industry average
Classification:
LUV, is amongst the top 40% lowest yielding stocks in terms of daily returns
Results of T-Test of Returns:
0.86
Statistical test of Returns:
LUV has yielded returns statistically similar to the market
Volatility (measured by Standard Deviation)
Daily Volatility:
2.95%
Weekly Volatility:
6.61%
Monthly Volatility:
13.21%
Yearly Volatility:
45.77%
Volitlilty of last five days (Measured by Standard Deviation)
Average Volatility of this Week:
0.70%
Volatility in last five trading days has been -76.42% below long-term volatility
Value at Risk Analysis (VaR)
Daily VaR:
-6.08%
Weekly VaR:
-13.60%
Monthly VaR:
-27.19%
How Much Can the price of
LUV
Decline in a Recession?
Likely price decline in a recession:
Base case (decline):
-24%
Worst case (decline):
-94.20%
This translates to price declining to:
$27.85
This translates to price declining to:
$2.13
Severe Crash Probability
Risk of crash in next 6/12 months: Low (<25%)
What is Value at Risk (VaR)?
Risk Fundamentals
LUV is a 91.92% riskier investment compared to the market/S&P 500 & is 64.42% riskier than Nasdaq (IXIC)
Risk (measured by volatility) is -29.66% below industry average
Overall, it is amongst the top 50% most risky stocks
Beta Examination of
LUV
Beta in relation to market/S&P 500--0.99
Expected beta in 1 year's time:
0.947
Expected beta in 3 year's time:
1.339
Unlevered (debt free) Beta:
0.545
Beta in relation to Nasdaq (XNAS):
0.784
Beta in relation to all global stocks::
0.749
Beta Comparison & Analysis
Beta of competitors/peers::
1.227
Beta is -19.66% lower than peers
Average Industry Beta:
1.438
Beta is -31.48% below industry average
Sustainable Growth Rate Analysis
Sustainable growth rate for this stock/firm:
9.92%
Sustainable growth rate is -35.59% below industry average
Alpha provided | Alpha Analysis
Alpha provided:
-0.129
Alpha is -20.71% below industry average alpha yield
Alpha is -820% below the market average
Analysis of Cost of Capital of
LUV
Equity cost of capital:
0.099
Equity cost of capital is -23.86% below industry mean WACC
Unlevered (without debt) cost of capital:
5.48%
Before-tax cost of debt:
3.37%
After-tax cost of debt:
2.66%
Overall debt rating:
High AA grade (second highest grade)
Weighted average cost of capital (WACC):
2.66%
WACC is -10.11% below industry mean WACC
Key Per-Share Metrics & Analysis
Revenue per share:
$31.06
Revenue growth rate per share of (3Y):
2.09
Annual revenue growth rate is 14.28% above the industry average
EPS:
$0.94
Expected Annual growth rate of EPS (3Y):
-27.96%
Expected future EPS growth rate is 17.10% higher than the Airlines industry
Free cash flow (FCF) per share:
$3.02
Balance sheet equity growth per share: -100.00%
Equity growth rate per share is 42.86% higher than the industry
Debt per share
$19.53
EBITDA per share
$4.21
Valuation Analysis Today of
LUV
P/E Ratio:
23.34
P/E Ratio of Competitors/Peers:
26.11
P/E ratio is -10.60% lower than main peers & is -26.54% lower than the industry
Stock price/value with industry average P/E ratio: $29.87
LUV is 23.02% overvalued if valued using industry average P/E ratio
Share value as per dividend discount (DDM) model: $12.67
Present value of the expected future dividends only: $3.64
P/S (Price to Sales ratio):
1.18
Price to sales ratio is 11.40% above the industry mean
P/B (Price to book value ratio):
2.09
Price to free cash flow: 12.17
Price to free cash flow ratio is -27.11% lower than the industry
Net income growth rate (3Y):
-61.64%
Net income growth rate is -45.60% lower than the industry average net income growth rate
Dividend Analysis
-
Dividend yeild: 0.98%
Previous Dividend: $0.18
Previous adjusted dividend: $0.18
Previous Dividend: $0.36
-
-
Average dividend payment (long-term): $0.18
Average dividend increase/decrease (growth rate) % per period: 0.00%
-
-
-
Previous dividend payment date: 25/03/2020
Previous dividend record date: 03/04/2020
Previous dividend declaration date: 29/01/2020
Dividend History:
2020-03-03--$0.18
--$0.00
--$0.00
2019-12-10--$0.18
--$0.00
--$0.00
-
In-depth Debt & Leverage Analysis
Debt to equity ratio:
111.22%
Net debt to equity ratio:
-8.23%
Debt to assets ratio:
31.09%
Net debt to assets ratio:
-2.30%
Debt-to-asset ratio is -52.94% below industry average
Ability to repay debt:
Interest coverage ratio:
6.07
Interest coverage ratio is 273.83% more than industry average
Looking forward:
Debt growth rate:
0.67%
Annual debt growth is -90% lower than industry average debt growth rate
Debt repayment rate in last quarter: 2.71%
Analysis of Key Statistics
Correlation of price movement with the market:
0.584
Statistical significance of correlation:
LUV has a statistically significant correlation with the market
Average Correlation of the industry with the market:
0.536
Stock price is 8.91% more correlated with the market, compared to the industry average correlation
R Squared (percentage of price movement explained by movement of the market):
0.536
Correlation of price movement with Nasdaq (^IXIC):
0.032
Covariance of price movement with the market:
0.055
Kurtosis
4.149
Returns have moderate fat-tails (leptokurtic), i.e., returns considerably higher or lower than the mean returns are more probable, compared to assets with normally distributed returns
Skewness of returns:
0.098
Returns are, approximately, symmetrical
Fundamental Analysis & Dupont Analysis of
LUV
Gross Profit Margin Ratio:
89%
Operating Profit Margin Ratio:
7.44%
Operating profit margin is -6813.06% lower than the industry
Net Profit Margin Ratio:
89%
Effective Tax Rate:
27.36%
Effective tax rate is 11.97% higher than the industry
Dupont Method
Net Profit Margin
Return on Equity Ratio (ROE):
×
ROA
=
×
5.61%
Return on equity (ROE) is -961.52% lower than the industry
Financial Leverage
Asset Turnover Ratio (ROA):
1.57%
Return on assets (ROA) is 1399.09% higher than the industry
Financial Leverage:
1.5x
Current Ratio:
1.87
Current ratio is 52.51% above industry average
Cash Conversion Cycle (days):
-4.6
Cash conversion cycle is -109.00% below industry average
The remaining useful life of property plant & equipment is: 2.0 years
Stock based compensation to net income ratio:
-
In-depth Efficiency Analysis
Revenue generated per employee:
295.7K
Each employee generates -5% less revenue than industry average revenue per employee
EBITDA generated per employee:
40.1K
Each employee generates 111% more EBITDA than industry average revenue per employee
Profit generated per employee:
9.4K
Each employee generates -308% less net income/profit than industry average revenue per employee
Free cash flow (FCF) generated per employee:
8.9K
Each employee generates 227% more free cash flow than industry average revenue per employee
Assets/Capital per employee
295.8K
Each employee generates 227% more free cash flow than industry average revenue per employee
Research & Development (R&D) Analysis
-
-
Competitors/Peer firms of
LUV
KANSAS CITY SOUTHERN (XMEX:KSU*)
DELTA AIR LINES, INC. (XNYS:DAL)
DOVER CORPORATION (XNYS:DOV)
INGERSOLL RAND INC. (XNYS:IR)
UNITED RENTALS, INC. (XNYS:URI)
ZTO EXPRESS (CAYMAN) INC. (XNYS:ZTO)
STANLEY BLACK & DECKER, INC. (XNYS:SWK)
CNH Industrial NV (XNYS:CNHI)
TRANSUNION (XNYS:TRU)
Current Analyst Ratings
Strong buy�29%
Buy�38%
Hold�13%
Sell�0%
Strong sell�0%
Overall analyst sentiment is: Buy
Income Statement
Period:
TTM
Date:
3/31/22
Revenue:
18.43B
Cost of Revenue:
Gross Profit:
R&D Expense
General & Admin Expenses:
Selling, General & Admin Expenses
Sales and Marketing Expenses
Other Expenses :
Operating Expenses :
Cost & Expenses :
Interest Income:
Interest Expenses:
Depreciation & Amortization:
EBITDA:
Operating Income:
Other Income Expenses:
Income Before Tax:
Income Tax Expense:
Net Income:
Balance Sheet
Date:
Calendar Year:
Period:
Cash & Cash Equivalents:
Short Term Investments:
Cash & Short Term Investments:
Net Receivables:
Inventory:
Other Current Assets:
Total Current Assets:
PP&E:
Goodwill:
Intangible Assets:
Long Term Investments:
Tax Assets:
Other Non-Current Assets:
Total Non-Current Assets:
Other Assets:
Total Assets:
Accounts Payable:
Short Term Debt:
Tax Payables:
Deferred Revenue:
Other Current Liabilities:
Total Current Liabilities:
Long Term Debt:
Other Non-Current Liabilities:
Total Non Current Liabilities:
Other Liabilities:
Total Liabilities:
Common Stock:
Retained Earnings:
Accumulated Other Comprehensive Loss:
Other Total Stockholders' Equity:
Total Stockholders' Equity:
Total Liabilities and Stockholders' Equity:
Total Investments:
Total Debt:
Net Debt:
14.40B
4.03B
-
-
-
-
2.66B
2.66B
14.00M
412.00M
1.28B
2.50B
1.37B
584.00M
804.00M
220.00M
584.00M
Statement of Cash Flow
Date:
Period:
324.00M
Differed Income Tax :
- 97000.00K
Stock Based Compensation :
-
Change in Working Capital :
579.00M
Accounts Receivables:
-
Other Working Capital:
-
Other Non-Cash Items:
543.00M
Net Cash Provided by Operating Activities:
1.07B
Investments in PP&E:
- 4000.00K
Net Acquisitions:
-
Purchases of Investments:
- 925000.00K
Sales/Maturities of Investments:
Other Investing Activities:
Net Cash Used for Investing Activities:
Debt Repayment:
Common Stock Issued:
Common Stock Repurchased:
Dividend Paid:
Other Financing Activities:
Net Cash Used Provided by Financing Activities:
Effect of FOREX on Changes in Cash:
Net Changes in Cash:
Cash at End of Period:
Cash at Beginning of Period:
Operating Cash Flow:
Capital Expenditure:
Free Cash Flow (FCF):
3/31/22
2022
Q1
13.10B
2.64B
15.74B
1.58B
623.00M
878.00M
18.82B
16.49B
970.00M
295.00M
-
-
683.00M
18.44B
-
37.26B
320.00M
655.00M
380.00M
6.41B
2.69B
10.07B
11.59B
1.16B
16.78B
-
26.85B
888.00M
15.55B
891.0M
-
March 31, 2022 at 6:00:00 AM
17.06B
10.42B
37.26B
-
12.24B
- 857000.0K
1.30B
- 510000.00K
- 139000.00K
- 323000.00K
-
-
-
9.00M
- 314000.00K
-
618.00M
13.10B
12.48B
1.07B
- 514000.00K
557.00M
Our Proprietary Portfolio Rating
Our Rating:
A
Price Forecast/Expected Price in Next 5 Years of
LUV
2023
2024
2025
2026
2027
$32.85
$35.03
$37.35
$39.82
$42.46