![]() Alaska also has a solid balance sheet, although it isn't quite as good as that of Southwest. Importantly, the company hasn't issued any stock this year, so its market cap has declined by a similar amount. airline industry right now, such as Alaska Air stock.Īlaska Air shares have fallen about 25% year to date. However, there are better options in the U.S. Southwest Airlines stock certainly isn't a terrible choice for long-term investors. Better options elsewhereĪs air travel demand recovers in the years ahead, Southwest Airlines could eventually grow its earnings to record levels, boosting its stock price. After falling too far earlier this year, the stock now appears to be overheated. In short, Southwest Airlines stock is trading at a level that implies investors think the company is worth more than it was at the beginning of 2020. ![]() At the current stock price, that would add nearly $3 billion to Southwest's market cap. Unless the company settles the convertible debt in cash at a premium, it could eventually wind up issuing nearly 60 million additional shares. Southwest Airlines stock already trades well above the conversion price of approximately $38.48 per share. ![]() In conjunction with its stock offering, the company also issued $2.3 billion of convertible debt on May 1. If anything, this understates the increase in Southwest's market cap. Southwest Airlines year-to-date stock performance. The increase in its share count means that Southwest's market cap is now 1% higher than it was at the beginning of the year. Furthermore, the company issued 80.5 million shares earlier this year in an effort to maintain a strong balance sheet. While a full earnings recovery is likely years away, Southwest Airlines stock ended the day on Monday down just 11% in 2020. Southwest Airlines stock has already recovered As far out as 2023, the analyst consensus calls for earnings per share somewhat lower than the company's 2019 adjusted EPS of $4.27. It will benefit from putting the 737 MAX back in service and replacing some of its older planes with 737 MAX 8s over the next few years, but the potential savings are fairly modest in the grand scheme of things.Īs a result, most analysts think Southwest Airlines will barely turn a profit next year. Southwest hasn't announced any major new restructuring programs to cut costs this year, either. Furthermore, they acknowledged that business demand may never recover to 2019 levels. ![]() On the other hand, Southwest Airlines executives estimated on the Q3 earnings call that business travel demand could remain 50% or more below pre-pandemic levels in late 2021. ![]() Leisure travel demand could improve rapidly as the summer approaches, assuming that vaccines start to tame the pandemic by then. Many other airlines have increased their cash burn forecasts recently, as rising COVID-19 case counts have again started to undercut air travel demand.ĭemand is likely to remain quite weak for the first few months of 2021. If anything, cash burn could end up being a bit worse than that estimate. Earnings won't bounce back quicklyīack in October, Southwest Airlines estimated that it would burn an average of $11 million of cash per day during the fourth quarter. ![]()
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