Assessing Whether Southwest Airlines Co. (NYSE: LUV) Is Over- Or Undervalued


    PRIMECAP Management Co. has recently announced that it has increased stake in Southwest Airlines Co. (NYSE:LUV) by 1.91%. After grabbing 69.19 million shares, the institutional investor is now in possession of 1.29 million shares of the Industrials Company. The new investment brought the stake of investor firm to 11.73% having worth around $2.14 billion. Moreover, SSgA Funds Management, Inc. increased its share by 4.94 million to have a control over 43.75 million shares. And The Vanguard Group, Inc. raised its holdings to 5.9 million shares by acquiring 40.1 million shares or 6.80% of the stake.

    Southwest Airlines Co. (LUV) concluded trading on 08/26/20 at a closing price of $36.38, with 7.87 million shares of worth about $286.17 million changed hands on the day. Weekly performance of the stock remained positive as price took a surge of 6.16% during that period and on Wednesday the price saw a loss of about -1.83%. Currently the company’s common shares owned by public are about 589.87M shares, out of which, 587.78M shares are available for trading.

    Analysts also issued an outlook of 2.30 for the Southwest Airlines Co. stock for next 12 months.

    According to filings with the U.S. Securities and Exchange Commission (SEC), insiders took part in trade of the company’s stock for 142 times over the past 12 months. They bought 880,831 shares in 31 of the transactions. In 111 selling transactions, insiders dumped 2,870,810 shares.

    Vanguard PRIMECAP Fund, Vanguard Total Stock Market Index, and Vanguard 500 Index Fund are the top 3 mutual funds which are holding stakes in Southwest Airlines Co. Vanguard PRIMECAP Fund is currently holding 34.51 million shares of worth totaling $1.07 billion. The company recently came buying 0.98 million shares which brought its stake up to 5.85% of the company’s outstanding shares. Vanguard Total Stock Market Index sold 50698.0 shares, after which its hold over company’s outstanding shares shrunk to 2.84%, leaving 16.76 million shares with the mutual fund that have a worth of about $517.81 million. Vanguard 500 Index Fund, after selling 11.06 million shares, have now control over 1.88% of the stake in the company. It holds 70256.0 shares of worth $341.62 million.

    Southwest Airlines Co. (NYSE: LUV) started trading at $36.91, below -$0.15 from concluding price of the previous day. However, the stock finished the trading on the day at a closing price of $36.38, or with a loss of -1.83%. Stock saw a price change of 6.16% in past 5 days and over the past one month there was a price change of 12.67%. Year-to-date (YTD), LUV shares are showing a performance of -32.60% which decreased to -27.95% when we look at its performance for past 12 months. Over the period of past 52 weeks, stock dropped to lowest price of $22.47 but also hit the highest price of $58.83 during that period. While comparing its average daily trading volume of 18.65 million shares, we see that about 7.87 million changed hands on the day. The stock is currently trading 7.61% above its 20-day simple moving average (SMA20), while that difference is up 7.89% for SMA50 and it goes to -13.35% lower than SMA200.

    PRIMECAP Management Co. acquired 69.19 million shares of Southwest Airlines Co. having value of about $2.14 billion. Data submitted at the U.S SEC by PRIMECAP Management Co. revealed that the firm now holds 1.29 million shares in the company valued at close to $47086270.2, or have control over 1.91% stake in the company. Southwest Airlines Co. (NYSE: LUV) currently have 589.87M outstanding shares and institutions hold larger chunk of about 74.20% of that. Holding of mutual funds in the company is about 32.00% while other institutional holders and individual stake holders have control over 42.01% and 10.26% of the stake respectively.

    The stock has a current market capitalization of $21.32B and its 3Y-monthly beta is at 1.26. PE ratio of stock for trailing 12 months is 106.69, while it has posted earnings per share of $0.34 in the same period. It has Quick Ratio of 1.70 while making debt-to-equity ratio of 0.88. Volatility of a stock is a metric used to know how much the price of that stock is under influence and for LUV, volatility over the week remained 3.37% while standing at 3.70% over the month.

    Analysts are in expectations that Southwest Airlines Co. (LUV) stock would likely to be making an EPS of -$2.3 in the current quarter, while forecast for next quarter ESPS is -$1.12 and it is $1.65 for next year. For the current quarter EPS, analysts have given the company a lowest target -$3.03 which is -$1.2 at the higher side of the target for the same. When we compare those targets with actual EPS, we find that company posted an EPS of $1.23 in the same quarter a year ago. Stock’s fiscal year EPS is expected to drop by -2.00% while it is estimated to increase by 126.80% in next year. EPS is likely to shrink at an annualized rate of -7.94% for next 5-years, compared to annual growth of 20.80% made by the stock over the past 5-years.

    Analysts at 20 brokerage firms have issued recommendations for the Southwest Airlines Co. (LUV)’s stock and average of those rates the stock at a “Moderate Buy” and assign it a score of 2.30. Out of those 20 Wall Street analysts, 11 recommended a “Buy” rating, while 9 were in favor recommending the stock as a “Hold” and 0 analyst recommended the stock as “Sell”.

    Digging deeper we find that several firms have released their research notes about the support levels of the stock. Most recent of them is a note released by Wolfe Research on July 13, 2020 offering a Peer perform rating for the stock and assigned a target price of to it. Coverage by Goldman stated Southwest Airlines Co. (LUV) stock as a Buy in their note to investors on June 29, 2020, suggesting a price target of $47 for the stock. On June 17, 2020, Seaport Global Securities Initiated their recommendations, while on June 12, 2020, Credit Suisse Upgrade their ratings for the stock with a price target of. Stock get a Buy rating from UBS on May 26, 2020.


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