Assessing Southwest Airlines (LUV) Valuation After A Strong Multi‑Period Share Price Rally

Why Southwest Airlines stock is drawing fresh attention

Southwest Airlines (LUV) is back on many investors’ screens after a recent share price move, inviting a closer look at how its current valuation lines up with its fundamentals and recent returns.

See our latest analysis for Southwest Airlines.

The recent 6.16% 1 day share price return and 25.83% 30 day share price return have come on top of a 69.99% 90 day share price return. At the same time, the 1 year total shareholder return of 84.82% and 3 year total shareholder return of 71.86% suggest momentum has been strong rather than fading.

If this kind of move has you looking beyond airlines, it could be a good moment to scan other infrastructure style themes through our screener of 24 power grid technology and infrastructure stocks.

With the share price already above the average analyst target, yet an intrinsic value estimate implying a 60% discount, the key question is whether Southwest still trades below its fundamentals or if the market is already pricing in future growth.

Most Popular Narrative: 14.3% Overvalued

Compared with the last close of $54.26, the most followed narrative pegs Southwest Airlines’ fair value at $47.47. This implies the current price sits above that estimate while still baking in meaningful earnings growth.

Loyalty program optimization and enhanced partnership agreements, such as the one with Chase, offer robust avenues for incremental EBIT. With expected record spending on co-branded credit cards, these changes in the loyalty program are set to further bolster revenues.

Read the complete narrative.

Want to see what kind of revenue path and margin rebuild would justify that fair value call? The narrative leans heavily on rising earnings quality, richer profit margins and a future earnings multiple that assumes today’s execution holds up. Curious how those moving parts all fit together over the next few years?

Result: Fair Value of $47.47 (OVERVALUED)

Have a read of the narrative in full and understand what's behind the forecasts.

However, softer booking trends and uncertainty around new fees or basic economy offerings could still unsettle demand and challenge the earnings path reflected in that fair value.

Find out about the key risks to this Southwest Airlines narrative.

Another view: DCF points in the opposite direction

While the narrative fair value of $47.47 suggests Southwest Airlines looks 14.3% overvalued at $54.26, our DCF model lands in a very different place. It estimates a future cash flow value of $135.47 per share, which frames the current price as trading at a 59.9% discount. Which story do you think fits the risk and execution hurdles better?

Look into how the SWS DCF model arrives at its fair value.

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out Southwest Airlines for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover 56 high quality undervalued stocks. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Next Steps

If this mixed picture has you on the fence, now is a good time to look through the numbers yourself and pressure test every assumption. To see what the market is currently optimistic about, take a closer look at the 2 key rewards.

Ready to find your next idea?

If Southwest has your attention, do not stop here. Use this momentum to scan fresh ideas so your watchlist keeps pace with where capital is actually moving.

• Target quality at a discount by reviewing our list of 56 high quality undervalued stocks, built from companies where fundamentals and price are not fully aligned.
• Prioritize resilience by checking out the 80 resilient stocks with low risk scores, focused on businesses with fewer red flags in their risk profiles.
• Get ahead of the crowd by studying our screener containing 24 high quality undiscovered gems, a collection of under the radar names with solid underlying metrics.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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