Southwest Airlines: Maybe When It's At The Bottom, But Not Now
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Wolf ReportInvesting Group LeaderFollow5ShareSavePlay(16min)CommentsSummarySouthwest Airlines is well-managed, domestically focused, and maintains a strong balance sheet, but sector risks and volatility limit current upside.LUV's forward profitability is expected to improve significantly by 2026, but recent Boeing delivery delays and sector headwinds constrain near-term growth.I assign LUV a fair value of $48/share, discounted for volatility, resulting in a 'Hold' rating due to limited risk-adjusted upside.Despite solid fundamentals and share repurchases, LUV's valuation does not currently offer a compelling entry point given industry cyclicality and forecast uncertainty. Getty Images A few types of stocks and sectors on the market are as fraught with opposing views as airlines, in my experience. Some investors love them; others, the exact opposite. Some think they are very appealing; others wonder how anyone can invest in themThis article was written byWolf Report34.5K FollowersFollowWolf Report is a senior analyst and private portfolio manager with over 10 years of generating value ideas in European and North American markets.He covers the markets of Scandinavia, Germany, France, UK, Italy, Spain, Portugal and Eastern Europe in search of reasonably valued stock ideas.Analyst’s Disclosure:I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. While this article may sound like financial advice, please observe that the author is not a CFA. It may be structured as such, but it is not financial advice. Investors are required and expected to do their own due diligence and research prior to any investment. They generally are not appropriate for someone with limited capital, limited investment experience, or a lack of understanding for the necessary risk tolerance involved. I own the European/Scandinavian tickers (not the ADRs) of all European/Scandinavian companies listed in my articles. I own the Canadian tickers of all Canadian stocks I write about. Please note that investing in European/Non-US stocks comes with withholding tax risks specific to the company's domicile as well as your personal situation. Investors should always consult a tax professional as to the overall impact of dividend withholding taxes and ways to mitigate these.Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.Quick InsightsHow does LUV's forward profitability outlook impact its valuation?LUV's profitability is projected to rise sharply by 2026, but current valuation already anticipates much of this, limiting near-term upside and justifying a 'HOLD' rating.What are the main risks affecting LUV's growth and capital allocation?Key risks include Boeing delivery delays, volatile input costs, unionization, and macroeconomic shocks, all of which can disrupt growth plans and require additional discounting in valuation.How does LUV's balance sheet and capital return strategy compare to peers?LUV boasts a BBB rating and sub-38% long-term debt to capital, with well-covered dividends and share repurchases, distinguishing it from more leveraged peers like DAL and AAL.Recommended For You