We Like The Quality Of Southwest Airlines' (NYSE:LUV) Earnings

The stock was sluggish on the back of Southwest Airlines Co.'s (NYSE:LUV) recent earnings report. We have done some analysis, and found some encouraging factors that we believe the shareholders should consider.

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The Impact Of Unusual Items On Profit

For anyone who wants to understand Southwest Airlines' profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by US$61m due to unusual items. While deductions due to unusual items are disappointing in the first instance, there is a silver lining. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. And that's hardly a surprise given these line items are considered unusual. If Southwest Airlines doesn't see those unusual expenses repeat, then all else being equal we'd expect its profit to increase over the coming year.

That might leave you wondering what analysts are forecasting in terms of future profitability. Luckily, you can click here to see an interactive graph depicting future profitability, based on their estimates.

Our Take On Southwest Airlines' Profit Performance

Because unusual items detracted from Southwest Airlines' earnings over the last year, you could argue that we can expect an improved result in the current quarter. Because of this, we think Southwest Airlines' earnings potential is at least as good as it seems, and maybe even better! And one can definitely find a positive in the fact that it made a profit this year, despite losing money last year. At the end of the day, it's essential to consider more than just the factors above, if you want to understand the company properly. Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. In terms of investment risks, we've identified 1 warning sign with Southwest Airlines, and understanding it should be part of your investment process.

This note has only looked at a single factor that sheds light on the nature of Southwest Airlines' profit. But there is always more to discover if you are capable of focussing your mind on minutiae. Some people consider a high return on equity to be a good sign of a quality business. While it might take a little research on your behalf, you may find this free collection of companies boasting high return on equity, or this list of stocks with significant insider holdings to be useful.

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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.