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What Are Analysts Saying About Southwest Airlines Co.'s (NYSE:LUV) Long Term Outlook?

Simply Wall St

In December 2018, Southwest Airlines Co. (NYSE:LUV) announced its latest earnings update, which suggested that the business faced a immense headwind with earnings deteriorating by -27%. Below, I've presented key growth figures on how market analysts perceive Southwest Airlines's earnings growth trajectory over the next few years and whether the future looks brighter. Note that I will be looking at net income excluding extraordinary items to get a better understanding of the underlying drivers of earnings.

View our latest analysis for Southwest Airlines

Market analysts' prospects for this coming year seems rather subdued, with earnings rising by a single digit 3.4%. The growth outlook in the following year seems much more buoyant with rates reaching double digit 13% compared to today’s earnings, and finally hitting US$2.9b by 2022.

NYSE:LUV Past and Future Earnings, April 18th 2019

Even though it’s helpful to understand the growth rate year by year relative to today’s level, it may be more valuable to analyze the rate at which the company is rising or falling every year, on average. The advantage of this technique is that it ignores near term flucuations and accounts for the overarching direction of Southwest Airlines's earnings trajectory over time, which may be more relevant for long term investors. To compute this rate, I've inserted a line of best fit through analyst consensus of forecasted earnings. The slope of this line is the rate of earnings growth, which in this case is 6.6%. This means that, we can expect Southwest Airlines will grow its earnings by 6.6% every year for the next couple of years.

Next Steps:

For Southwest Airlines, I've compiled three essential factors you should further examine:

  1. Financial Health: Does it have a healthy balance sheet? Take a look at our free balance sheet analysis with six simple checks on key factors like leverage and risk.
  2. Valuation: What is LUV worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether LUV is currently mispriced by the market.
  3. Other High-Growth Alternatives: Are there other high-growth stocks you could be holding instead of LUV? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.