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Is Southwest Airlines Stock a Buy Post a Solid Summer Performance?
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The Dallas-based low-cost carrier, Southwest Airlines (LUV - Free Report) , performed very well during the summer season, making most of the upbeat air travel demand scenario. LUV operated more than 414,000 flights during the period (May 24-Sept. 2, 2024), carrying a record 54 million passengers. Reflecting the highly impressive on-time performance, the completion factor (percentage of scheduled flights completed without cancellation or diversion) during summer was 99.3% compared with 97.3% a year ago.
On Labor Day, there were no flight cancellations, resulting in LUV achieving a completion factor of 100% on the day. Exhibiting delight at the strong operational performance, Bob Jordan, president, CEO & vice chairman of LUV’s board, said, "I'm so proud of our employees for staying focused on safety and running a great operation this Labor Day, and all summer long.”
Driven by upbeat air travel demand, the Zacks Consensus Estimate for revenues for the remaining quarters of 2024 as well as for full-year 2024 exhibit year-over-year growth. With air travel demand likely to remain strong, the stock should remain in good shape.
Image Source: Zacks Investment Research
The strong performance during the summer season is a further positive for LUV stock and may cause many investors to wonder if it is the right time to buy the stock. Let’s find out.
Update on Elliott’s Ownership of LUV
Apart from the strong operational performance, Southwest Airlines has also been in the news due to the pressure on management by hedge fund Elliott Investment Management. The hedge fund now holds 11% of LUV’s common stock, crossing the 10% threshold needed to call a special meeting.
Elliott, one of the world's most prominent investors, aims to discuss with the carrier’s management and push for changes at LUV, which is currently mired in multiple headwinds. LUV is currently suffering from high costs due to escalated expenses on fuel and labor.
Due to the headwinds, shares of LUV have plunged 14% over the past six months. The stock has underperformed not only its industry but also the S&P 500, of which the airline is a key member. Additionally, while LUV’s price performance compares unfavorably with that of United Airlines (UAL - Free Report) , it is better than another airline heavyweight, American Airlines (AAL - Free Report) , in the same time frame.
Six-Month Price Comparison
Image Source: Zacks Investment Research
LUV Stock Undervalued
From a valuation perspective, LUV is trading at a discount compared with the industry. Its forward 12-month price-to-sales, a commonly used multiple for valuing airline stocks, reading is also below its median over the last five years. The company has a Value Score of B.
Image Source: Zacks Investment Research
Technical indicators suggest continued strong performance for LUV. The stock is trading above its 50-day and 200-day moving averages, signaling robust upward momentum and price stability. This technical strength underscores positive market sentiment and confidence in LUV's financial health and prospects.
50-Day & 200-Day Moving Averages
Image Source: Zacks Investment Research
Conclusion
The strong performance by Southwest Airlines this summer is a huge positive for the stock. The ongoing uncertainty pertaining to the issue involving Elliott Investment Management, and the related issues raised by the hedge fund, however, makes us believe that investors should wait for a better entry point instead of rushing to LUV stock now. For those who already own the stock, it will be prudent to stay invested. The stock’s Zacks Rank #3 (Hold) supports our thesis.
Image: Bigstock
Is Southwest Airlines Stock a Buy Post a Solid Summer Performance?
The Dallas-based low-cost carrier, Southwest Airlines (LUV - Free Report) , performed very well during the summer season, making most of the upbeat air travel demand scenario. LUV operated more than 414,000 flights during the period (May 24-Sept. 2, 2024), carrying a record 54 million passengers. Reflecting the highly impressive on-time performance, the completion factor (percentage of scheduled flights completed without cancellation or diversion) during summer was 99.3% compared with 97.3% a year ago.
On Labor Day, there were no flight cancellations, resulting in LUV achieving a completion factor of 100% on the day. Exhibiting delight at the strong operational performance, Bob Jordan, president, CEO & vice chairman of LUV’s board, said, "I'm so proud of our employees for staying focused on safety and running a great operation this Labor Day, and all summer long.”
Driven by upbeat air travel demand, the Zacks Consensus Estimate for revenues for the remaining quarters of 2024 as well as for full-year 2024 exhibit year-over-year growth. With air travel demand likely to remain strong, the stock should remain in good shape.
The strong performance during the summer season is a further positive for LUV stock and may cause many investors to wonder if it is the right time to buy the stock. Let’s find out.
Update on Elliott’s Ownership of LUV
Apart from the strong operational performance, Southwest Airlines has also been in the news due to the pressure on management by hedge fund Elliott Investment Management. The hedge fund now holds 11% of LUV’s common stock, crossing the 10% threshold needed to call a special meeting.
Elliott, one of the world's most prominent investors, aims to discuss with the carrier’s management and push for changes at LUV, which is currently mired in multiple headwinds. LUV is currently suffering from high costs due to escalated expenses on fuel and labor.
Due to the headwinds, shares of LUV have plunged 14% over the past six months. The stock has underperformed not only its industry but also the S&P 500, of which the airline is a key member. Additionally, while LUV’s price performance compares unfavorably with that of United Airlines (UAL - Free Report) , it is better than another airline heavyweight, American Airlines (AAL - Free Report) , in the same time frame.
Six-Month Price Comparison
LUV Stock Undervalued
From a valuation perspective, LUV is trading at a discount compared with the industry. Its forward 12-month price-to-sales, a commonly used multiple for valuing airline stocks, reading is also below its median over the last five years. The company has a Value Score of B.
Technical indicators suggest continued strong performance for LUV. The stock is trading above its 50-day and 200-day moving averages, signaling robust upward momentum and price stability. This technical strength underscores positive market sentiment and confidence in LUV's financial health and prospects.
50-Day & 200-Day Moving Averages
Conclusion
The strong performance by Southwest Airlines this summer is a huge positive for the stock. The ongoing uncertainty pertaining to the issue involving Elliott Investment Management, and the related issues raised by the hedge fund, however, makes us believe that investors should wait for a better entry point instead of rushing to LUV stock now. For those who already own the stock, it will be prudent to stay invested. The stock’s Zacks Rank #3 (Hold) supports our thesis.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.