LUV
Southwest Airlines Co.
$48.91
Stable Earnings Power
40%
P/Adj-EPS × Normalized Multiple
Moderate
·
Conviction
Overvalued
Trading 17.1% above fair value
You pay
$48.91
Bear
$33.41
Fair
$41.76
Bull
$50.11
Bear
$33.41
-31.7%
$1.66 × 18x P/E
Fair
$41.76
-14.6%
$1.66 × 22x P/E
Bull
$50.11
+2.5%
$1.66 × 27x P/E
Key Value Driver
Normalized P/E multiple (22x base case)
Implied Market Multiple
29.5x
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 $52.05 from 45 analysts, using a 30% weight on analyst consensus. That produces an estimated intrinsic value of $41.76 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 $52.05 (from 45 analysts). Our estimate is 28% 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