Southwest Airlines Q4 Earnings: Can LUV Hit Its $1.11 EPS Target?

in EARNINGS/INVESTING IDEAS by

Southwest Airlines Co. (NYSE:LUV) is scheduled to report Q4 earnings results on January 23, 2020, before markets open for trading. The company is expected to report earnings of $1.11/share on revenue of $5.715 billion. The consensus earnings per share (EPS) of $1.11/share is based on a poll of 18 analysts and represents a decline of -5.4% over the same quarter last year when the company reported earnings of $1.17/share.

The revenue forecast of $5.715 billion based on a poll of 13 analysts implies a year-over-year (YoY) growth of 0.2%. Last year the company reported $5.704 billion in revenue for the quarter.

Expected to report EPS decline of -$0.06/share for Q4, 2019
Metric Expected Prior Year YoY Change
Revenue $5,715.00 $5,704.00 0.2%
EPS $1.11 $1.17 -5.4%

Southwest has managed to become the strongest brand in the industry by offering simple fare prices, free checked bags, and excellent customer service even as ultra-low-cost airlines like Spirit continue to put downward pressure on flight prices. While Southwest has managed to steadily grow revenue, the airline’s gross profit margins have suffered since 2015.

NYSE:LUV Fundamentals Chart
Source: Finbox

Earnings Call Trends

Historically, management has exceeded analyst expectations 7 out of the last 8 tracked quarters and met expectations 1 quarter.

What are your expectations from Southwest Airlines for earnings this quarter? Let us know in the comments!

Analyst Expected vs. Reported EPS
Quarter Expected Reported Surprise Result
Q3, 2019 $1.08 $1.23 13.9% Beat
Q2, 2019 $1.35 $1.37 1.5% Beat
Q1, 2019 $0.61 $0.70 14.8% Beat
Q4, 2018 $1.07 $1.17 9.0% Beat
Q3, 2018 $1.08 $1.08 0.0% Meet
Q2, 2018 $1.23 $1.26 2.4% Beat
Q1, 2018 $0.73 $0.75 2.2% Beat
Q4, 2017 $0.76 $0.77 1.4% Beat

In the following table, we summarize the company’s stock price movements after earnings releases. The “Price Day Prior” column shows the closing stock price on the day before the earnings report, and the “Price Next Day” column shows the stock price at the end of the trading day after the earnings report.

After the last earnings report for the period ending September 30, 2019, the stock price reacted by increasing by 6.6%.

Stock Price Performance After Earnings
Report Date Price Day Prior Price Next Day Change % Result
2019-10-24 $53.24 $56.74 6.6% Increase
2019-07-25 $54.72 $53.25 -2.7% Decline
2019-04-25 $52.93 $52.98 0.1% Increase
2019-01-24 $51.02 $54.98 7.8% Increase

Fundamentals And Technical Analysis

Southwest Airlines is currently trading at $53.54/share, down -2.7% for the day. The company is trading at approximately 91.1% of its 52-week high of $58.77/share. The company’s stock price is down -5.6% since the last earnings report and down -1.7% over the previous week.

The company’s 14 Day Relative Price Index (RSI) of 49.18 suggests the company is trading in technically neutral territory. The RSI is considered overbought when above 70 and oversold when below 30.

NYSE:LUV Stock Price Chart Source: Finbox

The current share price implies a price-to-earnings (P/E) multiple of 11.9x and a forward P/E multiple of 12.2x. Southwest Airlines’ current share price also implies a price-to-book (P/B) multiple of 2.9x. The following table summarizes some other key fundamental ratios:

Data as of January 21, 2020
Metric Value
Last Fiscal Period FY2019.Q3
Period End Date September 30, 2019
Stock Price (Current) $53.54
P/E Ratio 11.9x
P/E Ratio (Fwd) 12.2x
PEG Ratio 2.9
Total Debt to Capital (%) 13.2%
Levered Free Cash Flow $2.843 billion
Enterprise Value / EBITDA 7.0x

Source: Finbox

Company Profile: Southwest Airlines Co.

Southwest Airlines Co. is a large-cap stock with a market capitalization of $28.95 billion and a total enterprise value of $29.339 billion. The company operates in the Industrials sector and the Airline industry.

Southwest Airlines Co. operates a passenger airline that provides scheduled air transportation services in the United States and near-international markets.

As of December 31, 2018, the company operated a total of 750 Boeing 737 aircraft; and served 99 destinations in 40 states, the District of Columbia, and the Commonwealth of Puerto Rico, as well as 10 near-international countries, including Mexico, Jamaica, the Bahamas, Aruba, the Dominican Republic, Costa Rica, Belize, Cuba, the Cayman Islands, and Turks and Caicos. It also offers inflight entertainment and connectivity service on Wi-Fi enabled aircraft; and sells points and related services to business partners participating in the Rapid Rewards loyalty program, such as car rental agencies, hotels, restaurants, and retailers.

The company provides a suite of digital platforms to support customers’ needs across the travel journey, including Southwest.com, mobile.southwest.com, an iOS app, and an android app; and Swabiz.com, a Website for business customers that offer businesses shared stored company credit cards, company activity reporting, and centralized traveler management services.

Southwest Airlines Co. was founded in 1967 and is based in Dallas, Texas.

Expertise: financial modeling, mergers & acquisitions. Andy is also a founder at finbox.io, where he’s focused on building tools that make it faster and easier for investors to do investment research. Andy’s background is in investment banking where he led the analysis on over 50 board advisory engagements involving mergers and acquisitions, fairness opinions and solvency opinions. Some of his board advisory highlights: - Sears Holdings Corp.’s $620 mm spin-off via rights offering of Sears Outlet, Hometown Stores and Sears Hardware Stores. - Cerberus Capital Management’s $3.3 bn acquisition of SUPERVALU Inc.’s New Albertsons, Inc. assets. Andy can be reached at andy@finbox.io or at +1 (516) 778-6257.

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