2013 was an amazing year for the often-overlooked airline industry, as oil prices remained stable and demand for travel picked up. It also didn’t hurt that the broad transportation industry—a highly cyclical sector—was leading the huge market recovery last year.
Yet with such incredible gains, some might be dialing back their exposure to this corner of the market on valuation concerns. While this might be a good strategy overall, you could miss out on some companies which appear well positioned for further gains this year in the space, such as Southwest Airlines (LUV).
Southwest Airlines in Focus
Southwest Airlines has become a major discount carrier in the United States, with operations spanning the continental U.S. And with the company’s acquisition of AirTran, LUV has gained a foothold in international markets, and it appears as though this will only increase in the coming years.
Thanks to these expansion opportunities, and the generally positive reputation of Southwest Airlines, it does seem as though there is more room to run for LUV in the near future. This is especially true after looking at the December traffic numbers for the airline sector.
Southwest reported that its available seat miles grew 3.4%, while its passenger revenue per available seat mile increased as much as 15%. This was great news—and it easily beat competitors and their gains—which has prompted many analysts to raise their estimates for LUV’s stock as of late.
Analysts seem to be pretty positive on LUV’s growth prospects, as the firm is projected to show 87% growth for the current year, and just over 18% for next year too. Estimates have also been rising very recently, suggesting there is still time to get in on this story.
After all, in just the past week, three estimates have gone higher for both the current quarter and the current year, compared to zero lower. This has helped to push the consensus marginally higher as of late, suggesting that analysts are still bullish on the company’s prospects, even with the incredible run in 2013.
And, best of all, if you are worried about LUV hitting these lofty estimates, the company has shown a proven track record at earnings season. The stock has only missed once in the past two years, so it should have no trouble soaring past estimates once again.
Thanks to these factors, LUV has earned a Zacks Rank #1 (Strong Buy), meaning we are looking for more strength from this name in 2014. Plus, the Industry rank for airlines is currently just outside the top 10%, so it is hard not to like this top name in this solid sector.
Airlines had a great 2013, and many companies in this space led the market higher. One such name that did surprisingly well in this space is Southwest Airlines.
While the company did well last year, 2014 could be another banner year for the company thanks to the strong trends that are still in place in this sector. So if you are looking for a top pick in a surging industry, consider LUV as nothing looks to ground this quickly growing company any time soon.
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Author is long LUV