LUV - Embedded Expectations Analysis - 2019 09 18
Southwest Airlines (LUV:USA) currently trades near recent averages relative to UAFRS-based (Uniform) Earnings, with a 17.6x Uniform P/E. At these levels, the market is pricing in bearish expectations for the firm, and management may be concerned about capacity, the MAX groundings, and meeting their cost targetsSpecifically, management may lack confidence in their ability to sustain recent pretax return on invested capital, and they may be concerned about their ability to achieve their long-term cost targets. Furthermore, they may be concerned about their ability to sustain recent success rates during unexpected event situations, and they may lack confidence in the effectiveness of their rescheduling methods. Additionally, they may be concerned about the timing of Boeing's software fix for the MAX fleet and about their ability to unground the MAX fleet. Moreover, they appear concerned about the value of the slots they acquired at LaGuardia during 2013 and about their ability to add flights in the New York market. Finally, they may lack confidence in their ability to effectively change their fleet strategy and to manage their short capacity.
Southwest Airlines operates Southwest Airlines, a passenger airline that provides scheduled air transportation in the United States and near-international markets. The company has Boeing 737 aircraft in its fleet and serves destinations in various states, the District of Columbia, the Commonwealth of Puerto Rico, and other near-international countries such as Mexico, Jamaica, The Bahamas, Aruba, Dominican Republic, Costa Rica, Belize, Cuba, the Cayman Islands, and Turks and Caicos. The company principally provides point-to-point service, which allows for direct nonstop routing. The company also provides a suite of digital platforms to support Customers' needs prior to and during the course of their travel.
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