We recently issued an updated report on Southwest Airlines Co. LUV.
Like many other transportation companies, Southwest Airlines is hit by uncertainties related to the COVID-19 pandemic.
Southwest Airlines witnessed significant fall in air travel demand in the wake of the coronavirus outbreak. The company’s passenger revenues (accounting for approximately 90% of the top line) declined 19% in the first quarter, leading to a 17.8% drop in the top line. Load factor (percentage of seats filled by passengers) deteriorated 1330 basis points on a year-over-year basis. The situation is likely to get worse in the second quarter. In April, operating revenues declined 90-95% and capacity fell 58%.
Besides, the carrier is also seeing a decline in partner revenues from Chase as the credit card portfolios are experiencing reduced spending and lower acquisitions due to the coronavirus crisis. The airline’s ancillary and other revenues have also declined dramatically.
Since, Southwest Airlines has the largest exposure to Boeing 737 MAX jets, prolonged grounding of all such jets since March 2019, have consequently hurt the carriers operating income.
Southwest Airlines Co. Price
Southwest Airlines Co. price | Southwest Airlines Co. Quote
Nevertheless, declining fuel costs are a positive amid this global crisis. With significant drop in oil prices, fuel costs declined 7.3% in the first quarter. The company estimates fuel price in the range of $1-$1.1 per gallon for the second quarter compared with $2.13 in the year-ago quarter. The savings on fuel is expected to boost the bottom line.
Moreover, the liquidity position of the carrier is impressive. The cash and cash equivalents at Southwest Airlines for first-quarter 2020 are at $5,545 million, way above the current debt figure of $3,125 million. This indicates that the company has enough cash to meet its short-term debt burden.
Zacks Rank & Key Picks
Southwest Airlines carries a Zacks Rank #3 (Hold).
Some better-ranked stocks in the Zacks Transportation sector are Scorpio Tankers Inc. STNG, Teekay Tankers Ltd. TNK and Nordic American Tankers Limited NAT. Scorpio Tankers sports a Zacks Rank #1 (Strong Buy), while Teekay Tankers and Nordic American Tankers carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Scorpio Tankers’ current-year earnings has been revised upward in excess of 100% in the past 60 days.
The Zacks Consensus Estimate for Teekay Tanker’s current-year earnings has been revised upward by 35.6% in the past 60 days.
The Zacks Consensus Estimate for Nordic American Tankers’ current-year earnings has been revised upward by 14.1% in the past 60 days.
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Southwest Airlines Co. (LUV) : Free Stock Analysis Report
Nordic American Tankers Limited (NAT) : Free Stock Analysis Report
Teekay Tankers Ltd. (TNK) : Free Stock Analysis Report
Scorpio Tankers Inc. (STNG) : Free Stock Analysis Report
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