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Here's Why You Should Retain Southwest Airlines (LUV) Now
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Southwest Airlines Co. (LUV - Free Report) is benefiting from its rising air-travel demand as well as solid liquidity. However, rising fuel prices is a headwind.
Factors Favoring LUV
Continued recovery in air-travel demand (mainly on the leisure front) bodes well for Southwest Airlines. In the fourth quarter of 2022, air traffic, measured in revenue passenger miles, rose 5.4% year over year to $31.30 billion. Anticipating the trend to continue, Southwest Airlines’ management expects first-quarter 2023 operating revenues to register 21-23% year-over-year growth.
Available seat miles (a measure of capacity) are estimated to improve 10% from the year-ago reported figure. Capacity for full-year 2023 is anticipated to increase in the 15-16% range.
Southwest Airlines' liquidity position raises optimism in the stock. At the end of the fourth quarter, the carrier’s cash and cash equivalents was $9,492 million, higher than the long-term debt (fewer current maturities) of $8,046 million, implying that the company has enough cash to meet its debt obligations.
Key Risk
Escalating fuel prices represent a concern. In fourth-quarter 2022, fuel cost per gallon (inclusive of fuel tax: economic) rose 41.3% to $3.18. For first-quarter 2023, economic fuel costs per gallon are expected to be between $3.10 and $3.20. For full year 2023, economic fuel costs per gallon are estimated in the range of $2.65-$2.75.
Some better-ranked stocks in the Zacks Airline industry are American Airlines (AAL - Free Report) and Copa Holdings, S.A. (CPA - Free Report) .
American Airlines, currently carrying a Zacks Rank #2 (Buy), is benefiting from the improved air-travel-demand situation. In the fourth quarter of 2022, AAL reported earnings of $1.17 per share, surpassing the Zacks Consensus Estimate by 2.63%.
For first-quarter and full-year 2023, AAL’s earnings are expected to register 100.4% and 332% growth, respectively, on a year-over-year basis.
Copa Holdings sports a Zacks Rank #1 at present. We are encouraged by CPA's focus on its cargo segment.
For first-quarter and full-year 2023, CPA’s earnings are expected to register 302.9% and 40.8% growth, respectively, on a year-over-year basis.
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Here's Why You Should Retain Southwest Airlines (LUV) Now
Southwest Airlines Co. (LUV - Free Report) is benefiting from its rising air-travel demand as well as solid liquidity. However, rising fuel prices is a headwind.
Factors Favoring LUV
Continued recovery in air-travel demand (mainly on the leisure front) bodes well for Southwest Airlines. In the fourth quarter of 2022, air traffic, measured in revenue passenger miles, rose 5.4% year over year to $31.30 billion. Anticipating the trend to continue, Southwest Airlines’ management expects first-quarter 2023 operating revenues to register 21-23% year-over-year growth.
Available seat miles (a measure of capacity) are estimated to improve 10% from the year-ago reported figure. Capacity for full-year 2023 is anticipated to increase in the 15-16% range.
Southwest Airlines' liquidity position raises optimism in the stock. At the end of the fourth quarter, the carrier’s cash and cash equivalents was $9,492 million, higher than the long-term debt (fewer current maturities) of $8,046 million, implying that the company has enough cash to meet its debt obligations.
Key Risk
Escalating fuel prices represent a concern. In fourth-quarter 2022, fuel cost per gallon (inclusive of fuel tax: economic) rose 41.3% to $3.18. For first-quarter 2023, economic fuel costs per gallon are expected to be between $3.10 and $3.20. For full year 2023, economic fuel costs per gallon are estimated in the range of $2.65-$2.75.
Zacks Rank & Key Picks
Southwest Airlines currently carries a Zacks Rank #3 (Hold).You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Some better-ranked stocks in the Zacks Airline industry are American Airlines (AAL - Free Report) and Copa Holdings, S.A. (CPA - Free Report) .
American Airlines, currently carrying a Zacks Rank #2 (Buy), is benefiting from the improved air-travel-demand situation. In the fourth quarter of 2022, AAL reported earnings of $1.17 per share, surpassing the Zacks Consensus Estimate by 2.63%.
For first-quarter and full-year 2023, AAL’s earnings are expected to register 100.4% and 332% growth, respectively, on a year-over-year basis.
Copa Holdings sports a Zacks Rank #1 at present. We are encouraged by CPA's focus on its cargo segment.
For first-quarter and full-year 2023, CPA’s earnings are expected to register 302.9% and 40.8% growth, respectively, on a year-over-year basis.