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Here's Why You Must Hold onto Southwest Airlines for Now
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Southwest Airlines Co. (LUV - Free Report) has numerous tailwinds surrounding it, despite being burdened by rising costs, especially fuel, and the impact from recent weather-related disruptions.
Let’s delve into these factors.
Last month, the company provided a bullish outlook pertaining to unit revenues during the third quarter of 2018. It expects a 0.5 to 1 point year-over-year benefit to its unit revenues (RASM) on account of flight cancellations in the wake of the hurricanes. During the third quarter, passenger revenues continued to be strong besides impressive bookings and close-in yield trends. Combining all these factors, the low-cost carrier now envisions RASM to increase 1-1.5% year over year. Earlier view was a year-over-year change between -1% and 1%.
Further, the company anticipates a pre-tax benefit of $70-$80 million in the third quarter following implementation of a variable fee structure for its EarlyBird CheckIn product on Aug 29.
The company’s consistent efforts to expand operations worldwide is also noteworthy. Last month, the carrier announced plans to begin a non-stop service between San Jose and El Paso on Sundays effective Apr 14, 2019. Additionally, the airline will launch seasonal non-stop flights connecting Cleveland with Orlando and Milwaukee with Fort Myers. This Saturday service will start on Oct 6, this year. While the next day, it will initiate flights connecting Oklahoma City and Nashville, Denver and El Paso plus Oakland and Tucson. These flights will be operational only on Sundays.
Apart from these domestic services, early last month, the low-cost carrier announced several international flights for spring travel next year. Southwest Airlines is expected to begin a new Saturday service from St. Louis to Montego Bay and Punta Cana. The flights, for which government approval is pending, are scheduled to commence operations from Mar 9 onward.
Also, the carrier will revive seasonal services connecting Cancun with Milwaukee, Pittsburgh, Raleigh-Durham and San Antonio. The Baltimore/Washington and Cabo San Lucas/Los Cabos seasonal service will also resume operation. These Saturday services are also expected to be effective Mar 9.
The expansion initiatives are anticipated to boost the company’s top line going forward.
Southwest Airlines’ measures to reward shareholders through dividends and share buybacks are also encouraging. During the first half of the year, the company returned $1.2 billion to its shareholders through repurchases ($1 billion inclusive of the $500 million accelerated share repurchase launched in April) and dividends ($240 million). In May, the carrier hiked its quarterly dividend by 28% to 16 cents per share. Moreover, its board has cleared a new buyback program worth $2 billion.
The amended tax has been a boon to the entire transportation sector since its implementation last December. In the wake of the tax law, Southwest Airlines reduced its federal income tax liability by $1.4 billion last year. Moreover, massive tax savings from the same are anticipated to significantly boost the company’s 2018 earnings.
Owing to such tailwinds, shares of the company have gained more than 4% in the past six months versus the industry’s 16.1% decline.
In light of these positives, we believe investors should hold onto Southwest Airlines stock for now. The company’s Zacks Rank #3 (Hold) justifies our stance.
Shares of CSX, Canadian National Railway and Canadian Pacific Railway have rallied more than 24%, 12% and 15%, respectively, in the past six months.
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It could become the mother of all technological revolutions. Apple sold a mere 1 billion iPhones in 10 years but a new breakthrough is expected to generate more than 27 billion devices in just 3 years, creating a $1.7 trillion market.
Zacks has just released a Special Report that spotlights this fast-emerging phenomenon and 6 tickers for taking advantage of it. If you don't buy now, you may kick yourself in 2020. Click here for the 6 trades >>
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Here's Why You Must Hold onto Southwest Airlines for Now
Southwest Airlines Co. (LUV - Free Report) has numerous tailwinds surrounding it, despite being burdened by rising costs, especially fuel, and the impact from recent weather-related disruptions.
Let’s delve into these factors.
Last month, the company provided a bullish outlook pertaining to unit revenues during the third quarter of 2018. It expects a 0.5 to 1 point year-over-year benefit to its unit revenues (RASM) on account of flight cancellations in the wake of the hurricanes. During the third quarter, passenger revenues continued to be strong besides impressive bookings and close-in yield trends. Combining all these factors, the low-cost carrier now envisions RASM to increase 1-1.5% year over year. Earlier view was a year-over-year change between -1% and 1%.
Further, the company anticipates a pre-tax benefit of $70-$80 million in the third quarter following implementation of a variable fee structure for its EarlyBird CheckIn product on Aug 29.
The company’s consistent efforts to expand operations worldwide is also noteworthy. Last month, the carrier announced plans to begin a non-stop service between San Jose and El Paso on Sundays effective Apr 14, 2019. Additionally, the airline will launch seasonal non-stop flights connecting Cleveland with Orlando and Milwaukee with Fort Myers. This Saturday service will start on Oct 6, this year. While the next day, it will initiate flights connecting Oklahoma City and Nashville, Denver and El Paso plus Oakland and Tucson. These flights will be operational only on Sundays.
Apart from these domestic services, early last month, the low-cost carrier announced several international flights for spring travel next year. Southwest Airlines is expected to begin a new Saturday service from St. Louis to Montego Bay and Punta Cana. The flights, for which government approval is pending, are scheduled to commence operations from Mar 9 onward.
Also, the carrier will revive seasonal services connecting Cancun with Milwaukee, Pittsburgh, Raleigh-Durham and San Antonio. The Baltimore/Washington and Cabo San Lucas/Los Cabos seasonal service will also resume operation. These Saturday services are also expected to be effective Mar 9.
The expansion initiatives are anticipated to boost the company’s top line going forward.
Southwest Airlines’ measures to reward shareholders through dividends and share buybacks are also encouraging. During the first half of the year, the company returned $1.2 billion to its shareholders through repurchases ($1 billion inclusive of the $500 million accelerated share repurchase launched in April) and dividends ($240 million). In May, the carrier hiked its quarterly dividend by 28% to 16 cents per share. Moreover, its board has cleared a new buyback program worth $2 billion.
The amended tax has been a boon to the entire transportation sector since its implementation last December. In the wake of the tax law, Southwest Airlines reduced its federal income tax liability by $1.4 billion last year. Moreover, massive tax savings from the same are anticipated to significantly boost the company’s 2018 earnings.
Owing to such tailwinds, shares of the company have gained more than 4% in the past six months versus the industry’s 16.1% decline.
In light of these positives, we believe investors should hold onto Southwest Airlines stock for now. The company’s Zacks Rank #3 (Hold) justifies our stance.
Key Picks
Some better-ranked stocks in the broader Transportation sector are CSX Corporation (CSX - Free Report) , Canadian National Railway Company (CNI - Free Report) and Canadian Pacific Railway Limited (CP - Free Report) . While CSX sports a Zacks Rank #1 (Strong Buy), Canadian National Railway and Canadian Pacific Railway carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Shares of CSX, Canadian National Railway and Canadian Pacific Railway have rallied more than 24%, 12% and 15%, respectively, in the past six months.
More Stock News: This Is Bigger than the iPhone!
It could become the mother of all technological revolutions. Apple sold a mere 1 billion iPhones in 10 years but a new breakthrough is expected to generate more than 27 billion devices in just 3 years, creating a $1.7 trillion market.
Zacks has just released a Special Report that spotlights this fast-emerging phenomenon and 6 tickers for taking advantage of it. If you don't buy now, you may kick yourself in 2020.
Click here for the 6 trades >>