Southwest Airlines: Taking Its Lumps, But The Future Looks Bright


  • Until this month, Southwest Airlines Co. navigated COVID admirably, coming out with its investment-grade ratings intact, profitability restored, and dividend reinstated, with significant fleet upgrades coming in the next few years.
  • Southwest’s avalanche of cancellations in recent days will undoubtedly hit Q4 earnings. Management must focus on stopping the bleeding, compensating and retaining affected customers, and preserving its favorable brand.
  • Southwest Airlines has made great strides in capturing business travel share from its legacy rivals, which represents a significant source of potential growth in the future.
  • A strong record of profitability, net cash position, and high balance of unencumbered assets could perhaps make Southwest a rather large buyout target.
  • However, the investment thesis for Southwest Airlines is in no way dependent on a buyout, which only represents an outcome to the upside.

Aerial view of airport

Chalabala/iStock via Getty Images

I recommend a Buy rating on the shares of Southwest Airlines (NYSE:LUV), with a price target of $45 per share, roughly 15 times my forecast 2023 earnings per share before considering its cash position. The company’s recent

Grey Ghost estimates Implied airline guidance
2023 EPS $2.75 – $3.25 $3.50 – $4.00

Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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