LUV
Southwest Airlines Co.
$40.86
Stable Earnings Power
40%
P/Adj-EPS × Normalized Multiple
Mild
·
Conviction
Fair Value
Trading 0.6% below fair value
You pay
$40.86
Bear
$32.89
Fair
$41.11
Bull
$49.33
Bear
$32.89
-19.5%
$1.66 × 18x P/E
Fair
$41.11
+0.6%
$1.66 × 22x P/E
Bull
$49.33
+20.7%
$1.66 × 27x P/E
Key Value Driver
Normalized P/E multiple (22x base case)
Implied Market Multiple
24.6x
Summary
Our base-case estimate uses a valuation based on adjusted earnings per share and a normalized price-to-earnings multiple. We then blend that result with the average analyst price target of $49.89 from 45 analysts, using a 30% weight on analyst consensus. That produces an estimated intrinsic value of $41.11 per share.
Warnings
The company's reported profits differ from official accounting profits by 110%. Check what costs are being left out of the adjusted number.
The company pays out 91% of its profits as dividends. That leaves little cushion — the dividend could be cut if business slows down.
Dividend-based valuation: $10.39 (below our primary estimate by 72%). Large gaps may signal the dividend doesn't reflect full earning power.
Wall Street's average price target is $49.89 (from 45 analysts). Our estimate is 25% below the consensus -- consider that gap carefully.
Key Risks
- Growth DCF inappropriate — terminal value assumptions dominate
- EV/EBITDA misleading for regulated businesses where capex is mandated
- Regulatory risk is a fat tail not visible in normal multiples