Southwest Airlines Co. (NYSE: LUV)
Southwest Airlines Co., or just Southwest, is the world’s largest low-cost carrier and one of the major airlines in the United States. The company has its headquarters in Dallas, Texas and flies to 121 airports in the United States as well as 10 more countries abroad. With demand for flights booming in the summer season, Southwest Airlines has seen a surge in mentions by 153% over the last day, encouraging investors to wonder what makes the company so hyped. Currently, shares trade at $38.25.
It seems like airlines are recovering well from the pandemic and might show good returns in the near future, here are some of the reasons why this is the case for Southwest Airlines specifically.
Southwest Airlines Co. recently reported record quarterly revenue and unit revenue surged 22% over this period, indicating that the rise in demand has paid off well.
Southwest’s earnings more than doubled to $760 million for the quarter ended June 30 on revenue of $6.7 billion, which is up 68% from a year ago.
In addition, adjusted net income reached a record $825 million, up from $741 million in Q2 2019 (pre-pandemic conditions).
Southwest’s adjusted profit of $825 million, or $1.30 per share, exceeded analysts’ expectations of a profit of $1.17 per share.
Moreover, Southwest Airlines ended the second quarter with $5.9 billion of net cash, which seems like a lot more than the company needs.
Chief Executive Bob Jordan said, “Travel demand surged in the second quarter, and thus far, strong demand trends continue in the third quarter.”
With restrictions on dividends and share buybacks set to end on Sept. 30, Southwest could soon resume an expansive dividend and share repurchase program.
Although things seem to be looking up for the airline company, you must remember to take the drawbacks into consideration before taking a position in the company.
The company said it expected “inflationary pressures and headwinds from operating at suboptimal productivity levels” in the second quarter to continue in the second half.
The company's guidance called for slowing unit revenue growth (from 22% to 15%) and continued cost headwinds in the third quarter which is a bad sign and worries investors.
With a combination of strong financials, rising demand and the potential for increased dividends, it seems like it might be worth taking a position in Southwest Airlines immediately as the stock price has recently dropped. However, there are slightly worrying concerns about the near future with rising costs, inflationary pressures and the threat of a recession.
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