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Southwest Airlines Co LUV

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Morningstar’s Analysis

Valuation
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1-Star Price

PREMIUM

5-Star Price

PREMIUM

Economic Moat

PREMIUM

Capital Allocation

PREMIUM

Southwest Has the Clearest Pathway to Recovery in U.S. Airline Coverage; Shares Somewhat Undervalued

Burkett Huey, CFA Equity Analyst

Analyst Note

| Burkett Huey, CFA |

No-moat rated Southwest airlines reported continued revenue improvement and, excluding the effects of payroll support, posted a roughly breakeven quarter as travel surges with an easing of travel restrictions. After updating our model with second quarter results, we’re decreasing our fair value estimate for the firm to $65 from $66 as a faster pace of revenue recovery was more than offset by higher corporate taxes and increased near term oil price assumptions. Shares look somewhat attractive to us at current prices and we think that Southwest is the best-positioned  U.S. airline as it is primarily exposed to the domestic leisure travel market. We believe domestic leisure travel is the most likely form of air travel to be entirely unaffected by the pandemic over the long run.

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Company Profile

Business Description

Southwest Airlines is the largest domestic carrier in the United States, as measured by the number of originating passengers boarded. Southwest operates over 700 aircraft in an all-Boeing 737 fleet. Despite expanding into longer routes and business travel, the airline still specializes in short-haul leisure flights, using a point-to-point network. Southwest operates a low-cost carrier business model.

Contact
P.O. Box 36611
Dallas, TX, 75235-1611
T +1 214 792-4000
Sector Industrials
Industry Airlines
Most Recent Earnings Mar 31, 2021
Fiscal Year End Dec 31, 2021
Stock Type Distressed
Employees 56,051

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