Can Southwest Airlines Outperform Against Economic Headwinds?

Southwest Airlines Co. (NYSE:LUV) is one of the only major U.S. carriers to escape the financial crisis without filing for bankruptcy. With shares trading around $10.12, is LUV an OUTPERFORM, a WAIT AND SEE, or a STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

T = Technicals on the Stock Chart are Strong

The stock price was recently 8.33 percent above its 20-day simple moving average, or SMA; 11.45 percent above its 50-day SMA; and 14.88 percent its 200-day SMA.

Since the beginning of 2012 the stock price has been in a fairly pronounced upward trend, rising 15.36 percent this year-to-date and rising 15.09 percent year-over-year.

As a benchmark, the S&P 500 has risen 13.54 percent year-to-date and has risen 13.75 percent year-over-year.

E = Earnings are Unsteady

Southwest has posted revenue gains in three of the last four years. Revenue dropped 6.11 percent in 2009 after the financial crisis, but climbed nearly 17 percent in 2010, and nearly 30 percent in 2011.

Fiscal Year 2007 2008 2009 2010 2011
Revenue ($) in millions 9,861 11,020 10,350 12,100 15,660
Diluted EPS ($) 0.84 0.24 0.13 0.61 0.23

 

Earnings, on the other hand, have decreased in three of the last four quarters. Like every other airline on the planet, the company has faced tremendous economic headwinds and is highly sensitive to fuel prices, which have not helped its bottom line…