LUV: Find Stability Amid Turbulent Times With Southwest Airlines

Advertisement

Yesterday, several major U.S. airliners ran into turbulence on general concerns that increased seating capacity will lead to lower ticket prices and weigh on forward sales and earnings.

Apparently some of the selling action was sparked by Southwest Airlines Co’s (NYSE:LUV) announcement that it expects passenger revenue per available seat mile (PRASM) to decline for the second quarter. Southwest shares pulled back 9% after yesterday’s announcement, and several other major domestic airlines were also hit:

  • American Airlines Group Inc (NASDAQ:AAL) plunged 10%.
  • United Continental Holdings Inc (NYSE:UAL) fell 10%.
  • JetBlue Airways Corporation (NASDAQ:JBLU) pulled back 6.9%.
  • Delta Air Lines, Inc. (NYSE:DAL) declined 5.6%.

Is the U.S. airline industry grounded, or does this pullback present a buying opportunity? For two of the five stocks above, I’d say it’s the latter.

As you can see from the chart below, two of these stocks are doing quite well in shoring up their financial statements and remain compelling buying opportunities: Southwest Airlines and JetBlue. Of those two, I consider Southwest to be the clear choice, and here’s why:

20150520 nav blog

Top Airliner: Southwest

If you’re looking for a stable stock to own during somewhat uncertain times, you’d do well to fly with Southwest Airlines. As the world’s largest low-cost carrier, Southwest Airlines dominates U.S. air space. And through Southwest Airlines’ 2011 acquisition of AirTran Airways, LUV has grown its international presence by leaps and bounds.

In an industry plagued with politics and regulations, Southwest is by far the most efficient passenger airline in the U.S. Southwest Airlines’ stock ticker symbol is LUV for a good reason: Southwest regularly tops the list for Airline Quality Ratings in overall service.

As far as I can tell, all this talk about capacity should be a blip on the radar. LUV is taking advantage of the 2014 repeal of the Wright amendment, which restricted non-stop flying at the Dallas Love Field airport. Now that the amendment has been repealed, Southwest management decided to expand service out of Love Field in response to pent-up demand. While some analysts prefer to see airlines limit their capacity growth, this appears to be a smart move on the part of Southwest Airlines.

Add in a 0.8% dividend yield and a billion-dollar stock buyback program, and it’s not difficult to see that shareholders love LUV stock, too.

What I really like about Southwest Airlines is its sales and earnings projections for the next several quarters. This quarter, LUV is expected to post 60% earnings growth; for fiscal year 2015, Southwest is headed towards 75% bottom-line growth.

Then again, with LUV’s strong track record of earnings surprises, the sky is the limit for Southwest. LUV is an A-rated “buy.” My recommendation is that you use this near-term pullback as an opportunity to pick up LUV shares on the cheap … before Southwest stock takes off to new heights once again.

Louis Navellier is a renowned growth investor. He is the editor of five investing newsletters: Blue Chip GrowthEmerging GrowthUltimate GrowthFamily Trust and Platinum Growth. His most popular service, Blue Chip Growth, has a track record of beating the market 3:1 over the last 14 years. He uses a combination of quantitative and fundamental analysis to identify market-beating stocks. Mr. Navellier has made his proven formula accessible to investors via his free, online stock rating tool, PortfolioGrader.com. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.

More From InvestorPlace


Article printed from InvestorPlace Media, https://investorplace.com/2015/05/southwest-airlines-luv-stock/.

©2024 InvestorPlace Media, LLC