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Southwest (LUV) Stock Down 3.8% on High Fuel Price View for Q4
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Shares ofSouthwest Airlines Co. (LUV - Free Report) declined 3.8% on Dec 13, closing the trading session at $29.15. The downside was owing to the unfavorable fuel price guidance provided by Southwest Airlines for the fourth quarter. Notably, LUV has raised its fourth-quarter economic fuel costs per gallon guidance to between $3.00 and $3.10 (prior view: $2.90 to $3.00).
LUV continues to expect the cost per available seat mile (CASM, excluding fuel, oil and profit-sharing expenses, and special items) to decrease 16-19% in the fourth quarter from the comparable period in 2022. Interest expenses are still expected to be $63 million in the fourth quarter.
On the contrary, LUV is enjoying favorable air travel demand and yield. The company has witnessed solid leisure demand with record revenues during the Thanksgiving holiday period and better-than-expected close-in bookings, including managed business bookings, during the months of November and December so far.
Backed by this uptick, Southwest Airlines now expects fourth-quarter unit revenues to improve to the better end of its previous guidance range. LUV continues to expect record fourth-quarter operating revenues and passengers.
Revenue per available seat mile (RASM) for the December quarter is now expected to decline 9-10% (prior view: 9-11%). LUV continues to expect its fourth-quarter available seat miles (ASMs or capacity) to improve 21% from the year-ago period.
Notably, the record-breaking traffic during the Thanksgiving period has provided a much-needed boost to the airline stock after a few tough months due to headwinds like high labor and fuel costs and a slowdown in domestic air travel demand.
For 2023, Southwest continues to expect capacity to improve 14-15% from the 2022 level.
Further, LUV continues to anticipate first-quarter 2024 capacity to register year-over-year growth of 10-12% and 2024 capacity to register growth of 6-8%.
Management expects capacity beyond 2024 to grow in the low to mid-single-digit range (in percentage terms), down from the earlier stated mid-single-digit rise. The change in expectation is aimed at aiding LUV’s long-term financial target to deliver after-tax return on invested capital well above the weighted average cost of capital.
Zacks Rank and Stocks to Consider
Currently, Southwest Airlines carries a Zacks Rank #3 (Hold).
Wabtec has an expected earnings growth rate of 22.02% for the current year. WAB delivered a trailing four-quarter earnings surprise of 7.11%, on average.
The Zacks Consensus Estimate for WAB’s current-year earnings has improved 5.1% over the past 90 days. Shares of WAB have gained 21.8% year to date.
SkyWest's fleet-modernization efforts are commendable. The Zacks Consensus Estimate for SKYW’s current-year earnings has improved 31.5% over the past 90 days. Shares of SKYW have surged 202.1% year to date.
SKYW delivered a trailing four-quarter earnings surprise of 32.57%, on average.
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Southwest (LUV) Stock Down 3.8% on High Fuel Price View for Q4
Shares of Southwest Airlines Co. (LUV - Free Report) declined 3.8% on Dec 13, closing the trading session at $29.15. The downside was owing to the unfavorable fuel price guidance provided by Southwest Airlines for the fourth quarter. Notably, LUV has raised its fourth-quarter economic fuel costs per gallon guidance to between $3.00 and $3.10 (prior view: $2.90 to $3.00).
LUV continues to expect the cost per available seat mile (CASM, excluding fuel, oil and profit-sharing expenses, and special items) to decrease 16-19% in the fourth quarter from the comparable period in 2022. Interest expenses are still expected to be $63 million in the fourth quarter.
On the contrary, LUV is enjoying favorable air travel demand and yield. The company has witnessed solid leisure demand with record revenues during the Thanksgiving holiday period and better-than-expected close-in bookings, including managed business bookings, during the months of November and December so far.
Backed by this uptick, Southwest Airlines now expects fourth-quarter unit revenues to improve to the better end of its previous guidance range. LUV continues to expect record fourth-quarter operating revenues and passengers.
Revenue per available seat mile (RASM) for the December quarter is now expected to decline 9-10% (prior view: 9-11%). LUV continues to expect its fourth-quarter available seat miles (ASMs or capacity) to improve 21% from the year-ago period.
Notably, the record-breaking traffic during the Thanksgiving period has provided a much-needed boost to the airline stock after a few tough months due to headwinds like high labor and fuel costs and a slowdown in domestic air travel demand.
For 2023, Southwest continues to expect capacity to improve 14-15% from the 2022 level.
Further, LUV continues to anticipate first-quarter 2024 capacity to register year-over-year growth of 10-12% and 2024 capacity to register growth of 6-8%.
Management expects capacity beyond 2024 to grow in the low to mid-single-digit range (in percentage terms), down from the earlier stated mid-single-digit rise. The change in expectation is aimed at aiding LUV’s long-term financial target to deliver after-tax return on invested capital well above the weighted average cost of capital.
Zacks Rank and Stocks to Consider
Currently, Southwest Airlines carries a Zacks Rank #3 (Hold).
Some better-ranked stocks from the Zacks Transportation sector are Westinghouse Air Brake Technologies Corporation, operating as Wabtec Corporation (WAB - Free Report) and SkyWest, Inc. (SKYW - Free Report) . Each stock presently carries a Zacks Rank of 2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Wabtec has an expected earnings growth rate of 22.02% for the current year. WAB delivered a trailing four-quarter earnings surprise of 7.11%, on average.
The Zacks Consensus Estimate for WAB’s current-year earnings has improved 5.1% over the past 90 days. Shares of WAB have gained 21.8% year to date.
SkyWest's fleet-modernization efforts are commendable. The Zacks Consensus Estimate for SKYW’s current-year earnings has improved 31.5% over the past 90 days. Shares of SKYW have surged 202.1% year to date.
SKYW delivered a trailing four-quarter earnings surprise of 32.57%, on average.