LUV gets a fundamental rating of 4 out of 10. The analysis compared the fundamentals against 22 industry peers in the Passenger Airlines industry. LUV has a medium profitability rating, but doesn't score so well on its financial health evaluation. LUV is valued correctly, but it does not seem to be growing.

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1. Profitability

2. Health

3. Growth

4. Valuation

5. Dividend

1. Profitability

1.1 Basic Checks

In the past year LUV was profitable.
LUV had a positive operating cash flow in the past year.
Of the past 5 years LUV 4 years were profitable.
Of the past 5 years LUV 4 years had a positive operating cash flow.

1.2 Ratios

LUV has a better Return On Assets (1.34%) than 68.18% of its industry peers.
With a decent Return On Equity value of 4.87%, LUV is doing good in the industry, outperforming 68.18% of the companies in the same industry.
With a Return On Invested Capital value of 1.38%, LUV perfoms like the industry average, outperforming 45.45% of the companies in the same industry.
The Average Return On Invested Capital over the past 3 years for LUV is significantly below the industry average of 20.53%.

		Industry Rank	Sector Rank
ROA	1.34%
ROE	4.87%
ROIC	1.38%

ROA(3y)1.39%

ROA(5y)-0.4%

ROE(3y)4.65%

ROE(5y)-2.26%

ROIC(3y)1.77%

ROIC(5y)N/A

1.3 Margins

LUV's Profit Margin of 1.38% is fine compared to the rest of the industry. LUV outperforms 68.18% of its industry peers.
LUV's Profit Margin has declined in the last couple of years.
LUV's Operating Margin of 1.14% is in line compared to the rest of the industry. LUV outperforms 40.91% of its industry peers.
LUV's Operating Margin has declined in the last couple of years.
LUV has a Gross Margin of 73.50%. This is amongst the best in the industry. LUV outperforms 100.00% of its industry peers.
In the last couple of years the Gross Margin of LUV has remained more or less at the same level.

		Industry Rank	Sector Rank
OM	1.14%
PM (TTM)	1.38%
GM	73.5%

OM growth 3YN/A

OM growth 5Y-38.41%

PM growth 3Y-35.09%

PM growth 5Y-30.26%

GM growth 3Y0.9%

GM growth 5Y-0.77%

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ROA

ROE

ROIC

Operating and Profit Margin

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2. Health

2.1 Basic Checks

The Return on Invested Capital (ROIC) is below the Cost of Capital (WACC), so LUV is destroying value.
LUV has no outstanding debt. Therefor its Debt/Equity and Debt/FCF ratios are 0 and belong to the best of the industry.

2.2 Solvency

An Altman-Z score of 2.19 indicates that LUV is not a great score, but indicates only limited risk for bankruptcy at the moment.
The Altman-Z score of LUV (2.19) is better than 86.36% of its industry peers.
A Debt/Equity ratio of 0.52 indicates that LUV is somewhat dependend on debt financing.
LUV has a better Debt to Equity ratio (0.52) than 90.91% of its industry peers.

		Industry Rank	Sector Rank
Debt/Equity	0.52
Debt/FCF	N/A
Altman-Z	2.19

ROIC/WACC0.16

WACC8.86%

2.3 Liquidity

A Current Ratio of 0.49 indicates that LUV may have some problems paying its short term obligations.
LUV's Current ratio of 0.49 is on the low side compared to the rest of the industry. LUV is outperformed by 63.64% of its industry peers.
A Quick Ratio of 0.42 indicates that LUV may have some problems paying its short term obligations.
The Quick ratio of LUV (0.42) is worse than 63.64% of its industry peers.

		Industry Rank	Sector Rank
Current Ratio	0.49
Quick Ratio	0.42

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WACC

Debt/Equity

How to determine the health of a company

Altman-Z score

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3. Growth

3.1 Past

LUV shows a small growth in Earnings Per Share. In the last year, the EPS has grown by 6.45%.
Measured over the past years, LUV shows a decrease in Earnings Per Share. The EPS has been decreasing by -3.45% on average per year.

EPS 1Y (TTM)6.45%

EPS 3Y-3.45%

EPS 5YN/A

EPS Q2Q%3.57%

Revenue 1Y (TTM)N/A

Revenue growth 3YN/A

Revenue growth 5YN/A

Sales Q2Q%5.61%

3.2 Future

Based on estimates for the next years, LUV will show a very strong growth in Earnings Per Share. The EPS will grow by 53.42% on average per year.
Based on estimates for the next years, LUV will show a small growth in Revenue. The Revenue will grow by 6.16% on average per year.

EPS Next Y227.77%

EPS Next 2Y104.03%

EPS Next 3Y63.4%

EPS Next 5Y53.42%

Revenue Next Year9.22%

Revenue Next 2Y7.21%

Revenue Next 3Y6.33%

Revenue Next 5Y6.16%

3.3 Evolution

When comparing the EPS growth rate of the last years to the growth rate of the upcoming years, we see that the growth is accelerating.

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4. Valuation

4.1 Price/Earnings Ratio

The Price/Earnings ratio is 41.27, which means the current valuation is very expensive for LUV.
Compared to the rest of the industry, the Price/Earnings ratio of LUV is on the same level as its industry peers.
The average S&P500 Price/Earnings ratio is at 28.60. LUV is valued slightly more expensive when compared to this.
A Price/Forward Earnings ratio of 12.59 indicates a correct valuation of LUV.
LUV's Price/Forward Earnings is on the same level as the industry average.
Compared to an average S&P500 Price/Forward Earnings ratio of 25.83, LUV is valued rather cheaply.

		Industry Rank	Sector Rank
PE	41.27
Fwd PE	12.59

4.2 Price Multiples

Based on the Enterprise Value to EBITDA ratio, LUV is valued a bit cheaper than the industry average as 63.64% of the companies are valued more expensively.

		Industry Rank	Sector Rank
P/FCF	N/A
EV/EBITDA	11.56

4.3 Compensation for Growth

LUV's low PEG Ratio(NY), which compensates the Price/Earnings for growth, indicates a rather cheap valuation of the company.
LUV's earnings are expected to grow with 63.40% in the coming years. This may justify a more expensive valuation.

PEG (NY)0.18

PEG (5Y)N/A

EPS Next 2Y104.03%

EPS Next 3Y63.4%

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5. Dividend

5.1 Amount

With a Yearly Dividend Yield of 1.74%, LUV has a reasonable but not impressive dividend return.
Compared to an average industry Dividend Yield of 0.84, LUV pays a better dividend. On top of this LUV pays more dividend than 81.82% of the companies listed in the same industry.
LUV's Dividend Yield is comparable with the S&P500 average which is at 1.82.

		Industry Rank	Sector Rank
Dividend Yield	1.74%

5.2 History

The dividend of LUV has a limited annual growth rate of 0.82%.
LUV has been paying a dividend for at least 10 years, so it has a reliable track record.

Dividend Growth(5Y)0.82%

Div Incr Years0

Div Non Decr Years0

5.3 Sustainability

LUV pays out 105.01% of its income as dividend. This is not a sustainable payout ratio.
LUV's earnings are growing more than its dividend. This makes the dividend growth sustainable.

DP105.01%

EPS Next 2Y104.03%

EPS Next 3Y63.4%

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SOUTHWEST AIRLINES CO / LUV FAQ

Can you provide the ChartMill fundamental rating for SOUTHWEST AIRLINES CO?

ChartMill assigns a fundamental rating of 4 / 10 to LUV.

What is the valuation status of SOUTHWEST AIRLINES CO (LUV) stock?

ChartMill assigns a valuation rating of 3 / 10 to SOUTHWEST AIRLINES CO (LUV). This can be considered as Overvalued.

What is the profitability of LUV stock?

SOUTHWEST AIRLINES CO (LUV) has a profitability rating of 5 / 10.

How financially healthy is SOUTHWEST AIRLINES CO?

The financial health rating of SOUTHWEST AIRLINES CO (LUV) is 3 / 10.

What is the expected EPS growth for SOUTHWEST AIRLINES CO (LUV) stock?

The Earnings per Share (EPS) of SOUTHWEST AIRLINES CO (LUV) is expected to grow by 227.77% in the next year.