LUV
Southwest Airlines Co.
$39.88
Stable Earnings Power
40%
P/Adj-EPS × Normalized Multiple
Strong
·
Conviction
Overvalued
Trading 124.4% above fair value
You pay
$39.88
Bear
$14.22
Fair
$17.78
Bull
$21.33
Bear
$14.22
-64.3%
$0.79 × 18x P/E
Fair
$17.78
-55.4%
$0.79 × 22x P/E
Bull
$21.33
-46.5%
$0.79 × 27x P/E
Adjust Assumptions
22.5x
0.79$
Key Value Driver
Normalized P/E multiple (22x base case)
Implied Market Multiple
50.5x
Analyst Consensus (External Reference)
Never blended into the bear/base/bull estimates above.
Average Target (45 analysts)
$49.91
Divergence from AlphaVal
64%
Summary
Applying a 22x P/E to adjusted EPS of $0.79, the base-case value is $17.78 per share.
Warnings
The company pays out 91% of its profits as dividends. That leaves little cushion — the dividend could be cut if business slows down.
Wall Street's average price target is $49.91 (from 45 analysts). Our estimate is 64% 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