Is it Time to Buy Southwest Airlines In 2022?
06 Juillet 2022 - 11:43AM
Finscreener.org
Southwest Airlines (NYSE:
LUV), based out of Texas,
is one of the largest low-cost carriers in the world. It serves
around 121 destinations in the U.S. along with ten other countries
through its total fleet of 728 Boeing 737
aircraft.
The airline industry was majorly
hit
during the pandemic
as most people were locked up in
their houses. Though a recovery started taking place soon after the
economies reopened, problems such as labor shortages, high debt
levels, and higher fuel costs have been squeezing the industry
margins.
Southwest Airlines had its own
recovery journey hijacked by these factors. From a high of $55.06
in October 2021, it has now fallen to $36.18, down 17.7% so far in
2022. That said, robust demand for air travel around the world has
had a positive impact on the airline operator’s earnings and the
market is optimistic about its success now. So, it would not be a
bad idea to be bullish on Southwest Airline stock.
Increased demand for air travel
From the looks of it, the
pandemic-induced troubles in the airline industry seem to be a
thing of the past (though it will take time for all airlines to
fully recover from that act of God). Demand for air travel has been
rising steadily. An
analysis by the ReportLinker says the global airline
market which was once valued at $332.6 billion in 2020 is now
expected to reach $744 Billion by 2026 growing at a CAGR of 12.7%
between the projected period.
Also, the passenger airlines
segment might reach the $587.8 billion mark by 2026 growing at a
CAGR of 15.2%. This indicates the growth opportunity for Southwest
Airline will be immense in future.
Southwest Airlines has
proactively taken steps to accelerate the recovery. In March, US
airline operators, including Southwest, requested U.S.President Joe
Biden to relax some of the testing requirements and other
formalities for the ones undergoing international travel. As this
request was
partially accepted
the demand for air travel might
increase in the country further in the coming days thereby
improving the company’s overall prospects even more.
Improved earnings for Southwest Airlines
Despite high fuel costs and labor
shortages,
the first quarter
financials of Southwest
Airlines was certainly better than the previous few quarters. The
company had witnessed a strong rebound in its revenue trends within
the first quarter despite experiencing $430 million of
headwinds.
Its revenue for the quarter rose
by 8.8% to $4.7 billion compared to the 2019 levels and the RASM
also saw a marginal 0.4% betterment driven by the passenger yield
increase of 1.1% but was also partially offset by the load factor
decrease of 4 points. Notably, revenue performance from its loyalty
program was strong this time which included incremental revenue
from its new co-branded credit card agreement.
Moreover, the liquidity outlook
of Southwest Airlines remains solid as the company had $15.7
billion worth of cash and cash equivalents against $10.7 billion of
debt by the end of the first quarter. Further, the airline operator
is expected to grow its revenues by 8-12% in the current quarter
against 2019 levels while its earnings per share shall rise to $2.58 per share this year and to
$3.82 per share by the end of next year. Therefore, as more and
more opportunities start pouring in Southwest Airlines will be able
to utilize the excess cash to return to profitability
soon.
What next for investors?
Southwest AirlinesU+02019 stock
closed trading at $36.5 on July 5, and the average target price for
the stock is $57.23 which is a potential upside of
58.18%.
Southwest Airlines has pretty
good prospects. With the steady decline in the number of COVID-19
cases and the growing demand for air travel these days, the
earnings of the airline operator are expected to gain pace going
forward leading Southwest Airlines towards
profitability.
Moreover, the company is already
seeing a surge in travel demands across both domestic and
international sectors which is a healthy sign. So, if anyone wishes
to profit from the expanding aviation industry, they might think
about buying Southwest Airlines stock. However, one should know
before putting their money that it would still take some time for
the company to fully recover from the pandemic-related
injuries.
Southwest Airlines (NYSE:LUV)
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Southwest Airlines (NYSE:LUV)
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