Bull of the Day: Southwest Airlines (LUV)

Eric Dutram
Updated
0

2015 has been a very interesting year for airline stocks like Southwest Airlines (LUV). Extremely low oil prices made investors bullish about the space for much of the year, but then concerns over the economy and competition sank the space for much of the summer.

Overall, LUV is up about 11% YTD which is thoroughly crushing the S&P 500 over the same time frame, though most of this is thanks to the sudden surge over the past three months. LUV is actually up about 25% in just that time frame, pretty much saving the year for the stock.

But with such a big surge as of late, investors have to be asking, can this trend continue into 2016? If we look to recent earnings estimate revisions as a guide, then the answer to the question above may be ‘yes’.

Recent Earnings Estimates

With oil prices staying in a trend below $50 (and just breaching the $40 mark) this is fantastic news for the airline industry. Fuel is obviously one of their main input costs and less spending here leaves more for the bottom line.

And in Southwest Airlines’ case, these savings can be used to fuel an aggressive expansion campaign including the company’s first foray into international markets. From their new hub at Houston’s Hobby Airport—in addition to flights at several of the airline’s other major focus cities—LUV has begun to fly people across the Caribbean and beyond including to popular resort destinations like Cancun and Aruba, and more business-focused cities like Mexico City too. New routes means more profits which is more reason to be bullish on LUV right now.

These factors have given analysts no choice but to raise their earnings estimates for LUV stock pushing the consensus estimate higher for both the current year and next year time frame. In fact, for both of those time periods, not a single estimate was lowered suggesting that analysts have complete confidence in LUV to grow earnings.

And before you worry about LUV and its ability to beat lofty earnings expectations, consider that over the past four quarters it has beaten estimates each time including an average of 3.6% over the past four quarters. In fact, LUV hasn’t missed expectations since July of 2013, making it a compelling choice for earnings-focused investors.

Bottom Line

Thanks to the factors above, LUV has earned itself a Zacks Rank #1 (Strong Buy) and we are looking for a run of outperformance heading into 2016 as well. The company is expected to see incredible EPS growth for the year and its forward PE is still an absurdly low 13.2.

If that wasn’t enough, consider that LUV’s airline industry currently has an industry rank in the top 35% too, so there are plenty of tailwinds at the company’s back too. So, for an impressive choice heading into 2016 definitely consider Southwest Airlines as it is well-positioned for continued and profitable growth heading into the New Year.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>

Author is long LUV.


Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
SOUTHWEST AIR (LUV): Free Stock Analysis Report
 
To read this article on Zacks.com click here.
 
Zacks Investment Research

Advertisement

Recommended Stories

  • Cathie Wood Goes Bargain Hunting: 3 Stocks She Just Bought

    The popular growth investor added to these three existing positions on Tuesday.

  • Here's Exactly When Social Security Recipients Can Expect Benefit Cuts, According to the Latest Trustees Report

    Social Security payments may be subject to cuts. Here's what the timing looks like.

  • Morgan Stanley Predicts up to 110% Rally for These 2 ‘Strong Buy’ Stocks

    Uncertainty is the word of the day, in reference to the near-term economic future. Sentiment will hinge on the inflation numbers due out next week. March’s figure rose to 3.5%, and April’s job numbers showed a marked slowing in the labor market; that combination has stoked fears of stagflation. But – corporate earnings from Q1 are beating expectations, and the stock market has taken a turn for the better with the S&P 500 closing just below 5,200 yesterday. Economic strategists are still optimist

  • Can I Use My RMDs to Transfer Money Into My Roth IRA?

    If you're taking a required minimum distribution from an IRA, 401(k) or other tax-deferred account and don't need the money to cover living expenses, where should you stash that unneeded cash? Investors now need to start taking RMDs at age 73 or, if they were born after 1960, at age 75. Depending on the balances of […] The post Can I Use My RMDs to Transfer Money Into My Roth IRA? appeared first on SmartReads by SmartAsset.

  • How Much Cash Can A $300,000 Annuity Generate For Me Each Month?

    Imagine having a reliable source of income you can count on throughout your retirement. That’s the promise of an annuity. These insurance products have been designed to turn your savings into a steady stream of monthly payments. They guarantee peace of mind and financial security in your golden years. Don't Miss: Are you rich? Here’s what Americans think you need to be considered wealthy. Can you guess how many Americans successfully retire with $1,000,000 saved? The percentage may shock you. An

  • 3 Ridiculously Undervalued Stocks to Buy Hand Over Fist Right Now in May

    Investing in cheap stocks brings unique risks because there is usually a reason the companies are undervalued.

  • Stocks could tank after an ill-advised 'melt-up' if the Fed cuts rates to avoid recession

    "Investors' expectation that the Fed would nip a recession in the bud by easing means that the Fed Put is back," Ed Yardeni said.

  • Pfizer Stock Is Near An 11-Year Low — But Is It A Buy On This 'Massive' Upside?

    Pfizer stock ran up to its 50-day line after the company reported better-than-expected sales and profit. Is PFE stock a buy?

  • Real Estate Developer Soaked by Multimillion Dollar Loss on San Francisco Office Building

    Real estate developer Clarion Properties took a $60 million loss on a San Francisco office building it bought five years ago. The property at 410 Townsend Street is a four-story, 76,000-square-foot building. During the halcyon days of the tech industry, 410 Townsend was known as a startup village and was valued at $1,100 per square foot. That adds up to $86 million, which is what Clarion Partners bought the property for in 2019. That high price is emblematic of the high valuations of prime offic

  • IBM’s Red Hat Sued by Stephen Miller’s Legal Group for Anti-White Male Bias

    (Bloomberg Law) -- Ex-Trump adviser Stephen Miller’s legal group has sued IBM Corp. subsidiary Red Hat Inc. claiming the company’s diversity goals led to the discriminatory treatment and termination of a former White male employee. Most Read from BloombergMicrosoft’s Xbox Is Planning More Cuts After Studio ClosingsAmericans Are Racking Up ‘Phantom Debt’ That Wall Street Can’t TrackStormy Daniels Will Return to Court in Test of Trump’s DemeanorTrump Judge Indefinitely Postpones Documents Case Tri