Some Notes
So, I am mid-learning everything right now. One of my key realizations while I have been here is that I know nothing. I am basically trying to pitch a long on Southwest (LUV), even though the stock is kind of crap I think. Here are some of my notes on LUV so far, a brief look into the mind of a stock-madman. Note, I had a ton of stuff in here (like almost half of it) about oil prices inflating future earnings for LUV beyond expectations, but I trashed that on the advice of a Duke legend who shall remain nameless.
Decent insider buying (insert graph from BBG)
UAL (+200%), DAL (+95%), AAL (-2%), SPR (+100%), LUV (-15%), not that they’re due
21% of annual rev. spent on fuel cost
Seems to trade on fuel a bit for sure
JPM believe that LUV is comparatively overvalued when judging based on Spirit, JetBlue, and Frontier’s PE multiples
Expectations are backloaded (48.5 P/E based on 2024 rev., 36.2 based on 2025, and 16.5 based on 2026)
Any downward movement in 2026’s numbers will cause an implosion, especially based on the company’s current overvaluation
All their projected numbers for 2026 are supposed to be really good-I need to find their tangible reasoning for these boosted numbers
I think it’s pretty much just because they’re selling premium seating, and they’re collecting on bag fees
Pretty solid liquidity-4.5 billion of effectively cash equivalents, good share re-purchasing too
The key risk is not that these changes will not yield the added revenues expected, but that in the macro-sense, air-travel will slow.
When pitching a long position, I need to explain why, in a macro sense, air travel will increase and why LUV is uniquely positioned to pick up this extra baggage (pun intended)
Mentioned in the Deutsche piece on page two, but LUV has placed last in the industry in terms of ROIC (5.7%). However, LUV is forecasting ROIC of 15% in 2026 which seems steep.
Look into why ASMs are ticking up 5k. Are they buying more planes?
Load factors look really low. Maybe something here along the lines of LUV’s low load factors becoming inflated in the near future due to new programs, thereby providing approx 600 million more in rev. Could these new programs get more people to stay by locking them into pricier options? Less chaotic, more ordered, maybe something here.
Short interest is about 7% providing an opportunity to attack a misvaluation.
So yeah, this is what I have so far. I hope to be putting a thousand-word or so piece on this website soon explaining why this crap company that is probably overpriced is a great buy. But this is the last time I will be publicly recognizing this company’s crap when it comes to pricing. Now, I will begin the internal brainwash.
Big stuff coming soon but seriously. I promise!
