Southwest Airlines Co. Just Beat EPS By 13%: Here's What Analysts Think Will Happen Next

Last week saw the newest quarterly earnings release from Southwest Airlines Co. (NYSE:LUV), an important milestone in the company's journey to build a stronger business. It looks like a credible result overall - although revenues of US$7.4b were in line with what the analysts predicted, Southwest Airlines surprised by delivering a statutory profit of US$0.58 per share, a notable 13% above expectations. The analysts typically update their forecasts at each earnings report, and we can judge from their estimates whether their view of the company has changed or if there are any new concerns to be aware of. With this in mind, we've gathered the latest statutory forecasts to see what the analysts are expecting for next year.

View our latest analysis for Southwest Airlines

Taking into account the latest results, Southwest Airlines' 16 analysts currently expect revenues in 2024 to be US$27.1b, approximately in line with the last 12 months. Statutory earnings per share are forecast to plunge 69% to US$0.04 in the same period. Yet prior to the latest earnings, the analysts had been anticipated revenues of US$27.4b and earnings per share (EPS) of US$0.94 in 2024. The analysts seem to have become more bearish following the latest results. While there were no changes to revenue forecasts, there was a large cut to EPS estimates.

It might be a surprise to learn that the consensus price target was broadly unchanged at US$25.44, with the analysts clearly implying that the forecast decline in earnings is not expected to have much of an impact on valuation. Fixating on a single price target can be unwise though, since the consensus target is effectively the average of analyst price targets. As a result, some investors like to look at the range of estimates to see if there are any diverging opinions on the company's valuation. There are some variant perceptions on Southwest Airlines, with the most bullish analyst valuing it at US$33.00 and the most bearish at US$19.00 per share. These price targets show that analysts do have some differing views on the business, but the estimates do not vary enough to suggest to us that some are betting on wild success or utter failure.

These estimates are interesting, but it can be useful to paint some more broad strokes when seeing how forecasts compare, both to the Southwest Airlines' past performance and to peers in the same industry. We would highlight that Southwest Airlines' revenue growth is expected to slow, with the forecast 0.5% annualised growth rate until the end of 2024 being well below the historical 10% p.a. growth over the last five years. By way of comparison, the other companies in this industry with analyst coverage are forecast to grow their revenue at 7.4% per year. Factoring in the forecast slowdown in growth, it seems obvious that Southwest Airlines is also expected to grow slower than other industry participants.

The Bottom Line

The most important thing to take away is that the analysts downgraded their earnings per share estimates, showing that there has been a clear decline in sentiment following these results. Fortunately, the analysts also reconfirmed their revenue estimates, suggesting that it's tracking in line with expectations. Although our data does suggest that Southwest Airlines' revenue is expected to perform worse than the wider industry. There was no real change to the consensus price target, suggesting that the intrinsic value of the business has not undergone any major changes with the latest estimates.

With that in mind, we wouldn't be too quick to come to a conclusion on Southwest Airlines. Long-term earnings power is much more important than next year's profits. We have estimates - from multiple Southwest Airlines analysts - going out to 2026, and you can see them free on our platform here.

You still need to take note of risks, for example - Southwest Airlines has 3 warning signs (and 2 which are concerning) we think you should know about.

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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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com