US Equities Analysis

LUV — Southwest Airlines

Research evidence pack

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2. Company Fundamentals

2.1 Competitiveness

Metric Value
Operating Margins 4.55%
Profit Margins 2.83%
Return on Equity 10.06%
Return on Assets 1.94%
Free Float 0.48B
Dividend Yield 1.39%
Short Int % Utilisation 7.92%

2.2 Growth

Metric Value
Revenue Growth 12.8%
Free Cash Flow -0.37B
EBITDA 10.53 (Ratio)
Enterprise Value 23.3B
EV/Revenue 0.81
EV/EBITDA 10.53

Revenue growth of 12.8% indicates steady, moderate expansion.

2.3 Management

Role Metric
Consensus Rating N/A

2.4 Return

Metric Value
Expected Return (Ann.)* 57.92%
Risk / Std Dev (Ann.)* 44.25%
1-Year Price Return* 43.15%

Latest Market Data (as of 2026-08-14, US Eastern time):

Metric Value
Last Price $44.26
52-Week Range $29.26 – $55.11
Observation Count 251 trading days

The return and risk statistics use daily adjusted closes from the retrieved one-year series and annualise daily moments using 252 trading days. The last price is the latest regular-market price reported for the stated date. Source: Yahoo Finance market data.

2.5 FCFF DCF Valuation

Valuation basis: This research model follows a five-year, unlevered FCFF DCF. It starts from reported annual operating inputs, forecasts revenue and operating cash conversion under an explicit mechanical policy, discounts FCFF at WACC, applies a Gordon-growth terminal value, and bridges enterprise value to an indicative common-equity value per share. It is an analytical estimate rather than a recommendation or personalised target price.

Step 1 — Forecast Operating Profit and NOPAT

Reported operating input Value
Revenue $28.06B
Prior annual revenue $27.48B
EBIT $676.00M
Tax rate 21.70%
NOPAT = EBIT × (1 − tax rate) $529.31M
Forecast start-growth basis 2.11%
Forecast policy latest reported annual revenue growth, bounded to -10.00% / 15.00%

Step 2 — Calculate FCFF

Current FCFF building block Value
NOPAT $529.31M
Add: depreciation & amortisation $1.56B
Less: capital expenditure -$2.67B
Less/(add): working-capital cash-flow movement -$413.00M
Current unlevered FCFF -$996.69M

Explicit FCFF forecast

Forecast year Revenue growth NOPAT D&A Capex Change in NWC FCFF Present value
1 2.11% $540.48M $1.59B -$2.73B -$421.72M -$1.02B -$975.56M
2 2.21% $552.41M $1.63B -$2.50B -$431.03M -$749.80M -$660.42M
3 2.31% $565.15M $1.67B -$2.26B -$440.96M -$470.00M -$380.38M
4 2.40% $578.72M $1.71B -$2.01B -$451.56M -$177.06M -$131.67M
5 2.50% $593.19M $1.75B -$1.75B -$462.85M $130.35M $89.07M

Step 3 — Determine the Discount Rate (WACC)

WACC input Value
Risk-free rate 4.71%
Equity risk premium assumption 5.50%
Beta 1.14
Cost of equity 11.00%
Pre-tax cost of debt 1.61%
WACC 8.83%
WACC validation within standard range

Step 4 — Estimate Terminal Value

Terminal-value input Value
Perpetuity growth rate 2.50%
Terminal value $2.11B
Implied terminal EV / EBITDA 0.84x
Terminal value as % of enterprise value -204.31%

Step 5 — Discount Cash Flows to Enterprise Value

Enterprise-value component Value
Present value of explicit FCFF -$2.06B
Present value of terminal value $1.38B
Indicated enterprise value -$676.60M
Discounting convention mid-year for explicit FCFF; terminal value discounted at year-end five

Step 6 — Convert Enterprise Value to Equity Value

Equity bridge Value
Indicated enterprise value -$676.60M
Less: gross interest-bearing debt $5.98B
Add: cash and equivalents $3.23B
Add: affiliate investments $0.00
Less: minority interests $0.00
Indicated common equity value -$3.43B

Step 7 — Calculate Indicative Value Per Share

Per-share output Value
Shares used 558,000,000.00
Share-count basis reported diluted weighted-average shares
Current market price $42.69
DCF indicative value per share -$6.14
Indicative value vs. market price -114.38%

Model Integrity Checks

Check Result
Perpetuity growth is below the risk-free rate pass
Perpetuity growth is below WACC pass
WACC is within the configured operating-company range pass
Terminal-year FCFF is positive pass
Terminal capex converges to D&A pass
Terminal-value concentration review required
Implied price differs from spot by more than 30% review required

2.6 Investor-Style Research Screen

Educational screen Result
Buffett-inspired cash-quality checks 1/4 evidenced checks
Lynch-inspired balance-and-growth checks 2/4 evidenced checks

Data lineage: Yahoo Finance public market and reported-statement data; retrieval timestamp: 2026-08-18 17:40:51.666851 UTC; latest reported fiscal period: 2025-12-31 00:00:00. Default assumptions: five-year forecast, mid-year discounting for explicit FCFF, a maximum 2.50% perpetuity-growth rate below both WACC and the risk-free rate, historical operating-ratio persistence, and capex convergence to D&A by year five. No sell-side consensus or management guidance is substituted for reported inputs. This is research and analysis only, not personalized financial advice.

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