Airline stocks are taking it on the chin in early trading on the stock market today amid fears of how the first U.S. Ebola case might impact passenger traffic, halting the recent momentum of Southwest Airlines (NYSE:LUV), which had been trading near its highest point in 20 years.
Shares of Dallas-based Southwest were down 3% to 32.71 early Wednesday. The company's stock touched a multi-year high of 35.49 on Sept. 19 as Wall Street has embraced the low-cost carrier's recent earnings growth and future growth opportunities.
Southwest, based in Dallas, carries an IBD Composite Rating of 95 and ranks No. 3 in IBD's Transportation-Airline group. The leader is Spirit Airlines (NASDAQ:SAVE), with a Composite Rating of 97; followed by Ryanair (NASDAQ:RYAAY), with a rating of 96.
The group itself ranks No. 54 of 197 industries tracked by IBD.
Southwest has grown year-over-year earnings at least 84% the last four quarters. Three times during that span it posted triple-digit gains.
Although the company hasn't logged a double-digit revenue increase in more than two years, its 8% gain last quarter was its biggest since the second quarter of 2012.
In a note earlier this week, Todd Bunton, a stock strategist for Zacks Investment Research, said Southwest's adjusted operating margin during the second quarter expanded to 16.3% as its load factor — revenue passenger miles divided by available seat miles — increased 230 basis points to 83.9%.
"Over the last 12 months, the company has generated a solid 17.1% pre-tax return on invested capital, which is above its 15% full year target," Bunton said.
A recent report from stock researcher Trefis pointed out that while Southwest has not raised its flying capacity this year, "its profits have risen sharply on fare hikes and higher passenger traffic. We figure that Southwest will likely maintain its growth momentum through early 2015, on gains from specific growth opportunities."
Those opportunites include the expiration of restrictions imposed on Southwest's capacity expansion at Dallas Love Field airport. On Sept. 24, Trefis noted that when the restrictions expire "within the next month," Southwest will be able to expand its flight network from the airport.
In addition, Trefis said, slot wins at Washington Reagan and New York LaGuardia airports earlier this year "are enabling Southwest to expand in these high value geographies. We figure expansion in these markets will likely lift Southwest's overall yield and margin."
A longer-term opportunity is Southwest's ability to expand in near international markets, "which currently constitute a very small portion of its overall service network," Trefis said.
Source: southwest - Google News http://ift.tt/1ozy3sR
