does this plane go to paris
Senior
Another upgrade from Sachs
In an environment where legacies drive traffic and pricing growth from corporate travelers, we would expect low-cost carriers (LCC) to thrive. In our view, Southwest is well positioned to grow over the near- to long-term now that its merger integration is largely completed.
We have become more bullish on Southwest after conducting further analysis of its long-term earnings power. Based on our analysis, the carrier’s net margins are poised to surpass its prior peak level of 11.1% (in 2000) in a couple of years on the back of revenues accelerating at an incremental cost. By 2016, we estimate its net margins to expand to 11.4% from 7.2% this year. Moreover, we see potential for LUV’s net margins to expand to 14% by 2020E. Thus, we think LUV’s valuation will likely mean revert to 20x 2015E P/E. Our new 6-month price target of $55 ($44 prior) values the stock at 8.5x 2015E EV/EBITDAR, up from 6.8x previously.
We have tweaked our 2015E EPS to $2.80 from $2.75 and significantly increased our 2016E EPS to $3.68 from $2.88 on the back of more bullish revenue growth expectations. Now that its integration initiatives are well in train, we expect it to resume its focus on growth. In 2016, we expect international to become a key growth driver albeit off of a low base.
In an environment where legacies drive traffic and pricing growth from corporate travelers, we would expect low-cost carriers (LCC) to thrive. In our view, Southwest is well positioned to grow over the near- to long-term now that its merger integration is largely completed.
We have become more bullish on Southwest after conducting further analysis of its long-term earnings power. Based on our analysis, the carrier’s net margins are poised to surpass its prior peak level of 11.1% (in 2000) in a couple of years on the back of revenues accelerating at an incremental cost. By 2016, we estimate its net margins to expand to 11.4% from 7.2% this year. Moreover, we see potential for LUV’s net margins to expand to 14% by 2020E. Thus, we think LUV’s valuation will likely mean revert to 20x 2015E P/E. Our new 6-month price target of $55 ($44 prior) values the stock at 8.5x 2015E EV/EBITDAR, up from 6.8x previously.
We have tweaked our 2015E EPS to $2.80 from $2.75 and significantly increased our 2016E EPS to $3.68 from $2.88 on the back of more bullish revenue growth expectations. Now that its integration initiatives are well in train, we expect it to resume its focus on growth. In 2016, we expect international to become a key growth driver albeit off of a low base.
