Southwest Airlines (LUV, $41.49) reports largest-ever loss, as COVID-19 continues to hurt

Southwest Airlines  reported its biggest quarterly loss ever, with  the COVID-19 pandemic  continues to hurt air travel. However, the airline is has tapered its cash-burn rate.

The airline’s third-quarter loss came in at -$1.2 billion, or -$1.96 a share, vs. income of $659 million, or $1.23 a share, in the same period a year ago. Excluding special items, Southwest loss was -$1.2 billion, or -$1.99 a share. Analysts polled by FactSet had been expecting a loss of -$2.35 a share.

The quarterly operating revenue was $1.8 billion, down -68% year-over-year.

As of third quarter-end, Southwest had  liquidity of $15.6 billion, consisting of cash and short-term investments of $14.6 billion and a secured revolving credit facility of $1 billion.

The airline’s cash-burn rate, ( measures how much cash an airline is using to continue operations despite losses), was around $16 million per day in the third quarter, an improvement from average core cash burn of approximately $23 million per day in the second quarter. The company cited improving revenue trends as the primary reason.  

For the month of October, Southwest’s cash burn rate is estimated to be approximately $12 million per day, while fourth quarter 2020 is currently estimated to be approximately $11 million per day, “driven primarily by continued modest improvements in close-in leisure demand and booking trends, as well as cost savings from voluntary employee separation and leave programs,” according to Southwest’s statement.

“While we continue to make progress on reducing cash burn, in order to achieve cash burn break even, we estimate operating revenues will need to recover to an estimated 60-70% of 2019 levels, which is roughly double our third quarter 2020 levels,” CEO Gary Kelly said.

Southwest said it will soon stop blocking middle seats, a measure it had in place amid the pandemic. “This practice of effectively keeping middle seats open bridged us from the early days of the pandemic, when we had little knowledge about the behavior of the virus, to now,” Southwest said. “Today, aligned with science-based findings from trusted medical and aviation organizations, we will resume selling all available seats for travel beginning December 1, 2020.”

Tickeron's analysis suggests: 

LUV's MACD Histogram crosses above signal line

The Moving Average Convergence Divergence (MACD) for LUV turned positive on October 09, 2020. Looking at past instances where LUV's MACD turned positive, the stock continued to rise in 27 of 34 cases over the following month. The odds of a continued upward trend are 79%.

Current price $41.49 crossed the support line at $38.67 and is trading between $53.79 support and $38.67 support lines. Throughout the month of 09/21/20 - 10/21/20, the price experienced a +6% Uptrend. During the week of 10/14/20 - 10/21/20, the stock enjoyed a +2% Uptrend growth.

Technical Analysis (Indicators)

Bullish Trend Analysis

The Momentum Indicator moved above the 0 level on October 07, 2020. You may want to consider a long position or call options on LUV as a result. In 47 of 75 past instances where the momentum indicator moved above 0, the stock continued to climb. The odds of a continued upward trend are 63%.

LUV moved above its 50-day Moving Average on August 18, 2020 date and that indicates a change from a downward trend to an upward trend.

The 10-day Moving Average for LUV crossed bullishly above the 50-day moving average on August 17, 2020. This indicates that the trend has shifted higher and could be considered a buy signal. In 10 of 13 past instances when the 10-day crossed above the 50-day, the stock continued to move higher over the following month. The odds of a continued upward trend are 77%.

Following a +1.21% 3-day Advance, the price is estimated to grow further. Considering data from situations where LUV advanced for three days, in 223 of 331 cases, the price rose further within the following month. The odds of a continued upward trend are 67%.

The Aroon Indicator entered an Uptrend today. In 163 of 247 cases where LUV Aroon's Indicator entered an Uptrend, the price rose further within the following month. The odds of a continued Uptrend are 66%.

Bearish Trend Analysis

The 10-day RSI Indicator for LUV moved out of overbought territory on September 17, 2020. This could be a bearish sign for the stock. Traders may want to consider selling the stock or buying put options. Tickeron's A.I.dvisor looked at 44 similar instances where the indicator moved out of overbought territory. In 24 of the 44 cases, the stock moved lower in the following days. This puts the odds of a move lower at 55%.

The Stochastic Indicator demonstrated that the ticker has stayed in the overbought zone for 9 days. The longer the ticker stays in the overbought zone, the sooner a price pull-back is expected.

Following a 3-day decline, the stock is projected to fall further. Considering past instances where Apple declined for three days, the price rose further in 50 of 62 cases within the following month. The odds of a continued downward trend are 66%.

LUV broke above its upper Bollinger Band on October 09, 2020. This could be a sign that the stock is set to drop as the stock moves back below the upper band and toward the middle band. You may want to consider selling the stock or exploring put options.

Fundamental Analysis (Ratings)

Tickeron has a positive outlook on this ticker and predicts a further increase by more than 4.00% within the next month with a likelihood of 62%. During the last month, the daily ratio of advancing to declining volumes was 1.26 to 1.

The Tickeron PE Growth Rating for this company is 3 (best 1 - 100 worst), pointing to outstanding earnings growth. The PE Growth rating is based on a comparative analysis of stock PE ratio increase over the last 12 months compared against S&P 500 index constituents.

The Tickeron Price Growth Rating for this company is 47 (best 1 - 100 worst), indicating steady price growth. LUV’s price grows at a higher rate over the last 12 months as compared to S&P 500 index constituents.

The Tickeron Valuation Rating of 68 (best 1 - 100 worst) indicates that the company is slightly overvalued in the industry. This rating compares market capitalization estimated by our proprietary formula with the current market capitalization. This rating is based on the following metrics, as compared to industry averages: P/B Ratio (2.16) is normal, around the industry mean (2.17). LUV has a moderately high P/E Ratio (99.18) as compared to the industry average of (29.03). Projected Growth (PEG Ratio) (0.00) is also within normal values, averaging (1.62). Dividend Yield (1.30) settles around the average of (0.89) among similar stocks. LUV's P/S Ratio (1.16) is slightly higher than the industry average of (0.64).

The Tickeron SMR rating for this company is 88 (best 1 - 100 worst), indicating weak sales and an unprofitable business model. SMR (Sales, Margin, Return on Equity) rating is based on comparative analysis of weighted Sales, Income Margin and Return on Equity values compared against S&P 500 index constituents. The weighted SMR value is a proprietary formula developed by Tickeron and represents an overall profitability measure for a stock.

The Tickeron Profit vs. Risk Rating rating for this company is 91 (best 1 - 100 worst), indicating that the returns do not compensate for the risks. LUV’s unstable profits reported over time resulted in significant Drawdowns within these last five years. A stable profit reduces stock drawdown and volatility. The average Profit vs. Risk Rating rating for the industry is 92, placing this stock better than average.

Contributor

Sergey Savastiouk|Expert

Sergey Savastiouk, Ph.D. has a degree in Applied Mathematics from Moscow University and has extensive experience as an entrepreneur, investor, manager, and mathematician. His professional expertise is in applied mathematics, mathematical modeling, system and pattern analysis, and software and hardware system integration. He has served as the CEO of several hi-tech start-up companies and nonprofit organizations, which has given him proven capabilities in business strategy for high-tech start-up companies, market assessment, company formation, team building, product development, marketing, and sales. He has published numerous articles in journals and magazines on related fields. As a retail investor, he spent 15 years developing his proprietary trading and quantitative algorithms (now Tickeron’s A.I.), which brought him significant returns in trading the stock market. His current work and goal in founding Tickeron is to bring professional, sophisticated stock market analysis capabilities to retail investors via an easy-to-use interface.

Notable companies

Industry description

Market Cap

High and low price notable news

Volume