Will Southwest Airlines Co (NYSE:LUV) Continue Rallying Higher?

November 24, 2017, 10:29 am ET, BY Simon M.- Contributor| Editor: Thomas H. Kee Jr. (Follow on LinkedIn)

Southwest Airlines Co (NYSE:LUV) is a major airline company with a leading position in the low-cost airline industry where it has been profitable for a long time. Many analysts believe that the stock is currently undervalued given its strong fundamentals, which begs the question whether the airline will continue rallying higher.

Article Summary

Southwest Airlines has grown its dividend consistently for the last five years.

The airline has been profitable for 44 consecutive years.

The company’s future looks promising and it has potential to rally higher.

Here’s the trading report on LUV.

An analysis of the airline’s performance over the past five years indicates that it has increased its dividend payout by an average of about 53% on an annual basis. As if this is not enough, the company is on track to record its 45^th consecutive profitable year. This is a major achievement given the various headwinds facing the airline industry.

It is evident that the airline’s management is doing something right in the running of the low-cost airline, which is largely attributed to its executive compensation plan. The airline pays its executives quite well with 80% of bonuses being pegged to the company’s performance measured against set metrics outlined by the board of directors.

Underperforming executives are denied bonuses, which is a strong motivator for all executives to work hard at growing the company and creating value for both customers and shareholders.

The airline’s business model is also a major strength given that it has simplified the flying experience by making it easy and free for customers to check in bags and cancel flights. The airline also operates a fleet of almost 700 planes composed of three variations of the Boeing 737, which drastically lowers its operating costs as any pilot can fly any of its planes. This is contrasted with other airlines such as United Continental Holdings Inc (NYSE:UAL), which has about 16 different types of airplanes on its fleet.

The company’s operating costs are further lowered by the fact that the maintenance crew can fix all the planes as opposed to have different crews assigned to each of the different types of airplanes, as is the case with most airlines. The company can also negotiate huge discounts with Boeing Co (NYSE:BA) given that it purchases many units of the same type of plane.

The airline’s business model seems to resonate with most airline customers who rated it first among both low-cost and traditional airlines in a 2017 survey conducted by JD Power. The airline offers a similar customer experience to all its customers given that all its planes are similar coupled with its unique operating model.

To find out more about where we believe LUV stock is going to go in the future, subscribe to our proactive investment newsletter. As a free trial member, you will have access to over 1300 real time stock trading reports full of actionable trading strategies.

Support and Resistance Plot Chart for

Real Time Updates for Repeat Institutional Readers:

Factset: Request User/Pass

Bloomberg, Reuters, Refinitiv, Zacks, or IB users: Access Here.