Southwest Airlines Co (LUV) stock analysis

P/E below its 5-year median

Southwest Airlines's P/E of 22.9 is below its own 5-year median of 44.2.

P/E above the industry

Southwest Airlines's P/E of 22.9 is above the Air Transportation, Scheduled, and Air Courier median of 17.7.

EV/EBITDA below its 5-year median

Southwest Airlines's EV/EBITDA of 8.5 is below its 5-year median of 8.8.

P/B above the industry

Southwest Airlines's price-to-book of 3.11 is above the Air Transportation, Scheduled, and Air Courier median of 1.77.

Trading below fair value

The share price of $46.48 is below our fair value estimate of $53.41.

Margin of safety under 20%

The price is 13.0% below fair value, less than the 20% cushion we look for.

Revenue growing under 10% a year

Revenue grew 5.6% a year over the last three fiscal years, short of the 10% we look for.

EPS growing under 10% a year

Diluted EPS grew -3.2% a year over the last three fiscal years.

Earnings acceleration

Needs positive net income now, a year ago and five years ago.

Growing faster than the industry

Revenue grew 14.5% over the last twelve months; the Air Transportation, Scheduled, and Air Courier median is 11.0%.

Guidance raised

Southwest Airlines raised its 4Q 2026 RASM (b), year-over-year outlook on Oct 21, 2026.

Gross margin trend

This company does not report gross profit.

Return on equity under 15%

Return on equity was 13.9% over the last twelve months and averaged 5.8% over five years; we look for 15% on both.

Return on capital over 10%

Return on invested capital was 11.7%, above the 10% that usually covers the cost of capital.

Return on equity below the industry

Southwest Airlines's return on equity of 13.9% is below the Air Transportation, Scheduled, and Air Courier median of 13.9%.

Earnings over 5 years

Needs positive net income five years ago and in the latest year.

Net margin above its 5-year average

Net margin was 3.3% over the last twelve months, against a 5-year average of 2.7%.

Net margin below the industry

Southwest Airlines's net margin of 3.3% is below the Air Transportation, Scheduled, and Air Courier median of 4.6%.

High debt

Debt is 80.3% of shareholders' equity, above the 40% we consider low.

Debt falling against equity

Debt to equity fell from 116% five years ago to 80.3%.

Debt covered by cash flow

Operating cash flow over the last twelve months equals 46.8% of total debt.

Interest well covered

Operating income covers interest expense 5.9 times.

Short-term assets don't cover short-term debts

Current assets are 0.47 times current liabilities.

Bankruptcy risk in the grey zone

The Altman Z-score is 2.26; above 3 is the safe zone and below 1.8 the distress zone.

Pays a dividend

Southwest Airlines paid dividends worth 1.5% of the share price over the last twelve months.

Yield below Treasuries

The 1.5% yield is below the 4.4% on a 1-year Treasury.

Yield below the top quarter

The top quarter of US dividend payers yield 3.8% or more; Southwest Airlines yields 1.5%.

Dividend was cut

The dividend per share fell by more than 10% at least once in the last 9 fiscal years.

Covered by earnings

Dividends take 33.9% of net income.

Cash-flow cover

Needs dividends paid and free cash flow.