As you might know, Southwest Airlines Co. (NYSE:LUV) just kicked off its latest third-quarter results with some very strong numbers. Results overall were credible, with revenues arriving 5.1% better than analyst forecasts at US$1.8b. Higher revenues also resulted in lower statutory losses, which were US$1.96 per share, some 5.1% smaller than the analysts expected. 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. We thought readers would find it interesting to see the analysts latest (statutory) post-earnings forecasts for next year.
After the latest results, the 16 analysts covering Southwest Airlines are now predicting revenues of US$15.6b in 2021. If met, this would reflect a substantial 22% improvement in sales compared to the last 12 months. Earnings are expected to improve, with Southwest Airlines forecast to report a statutory profit of US$1.18 per share. Before this earnings report, the analysts had been forecasting revenues of US$15.9b and earnings per share (EPS) of US$1.39 in 2021. From this we can that sentiment has definitely become more bearish after the latest results, leading to lower revenue forecasts and a substantial drop in earnings per share estimates.
Despite the cuts to forecast earnings, there was no real change to the US$46.92 price target, showing that the analysts don't think the changes have a meaningful impact on its intrinsic value. The consensus price target is just an average of individual analyst targets, so - it could be handy to see how wide the range of underlying estimates is. The most optimistic Southwest Airlines analyst has a price target of US$59.00 per share, while the most pessimistic values it at US$29.00. This is a fairly broad spread of estimates, suggesting that analysts are forecasting a wide range of possible outcomes for the business.
Looking at the bigger picture now, one of the ways we can make sense of these forecasts is to see how they measure up against both past performance and industry growth estimates. For example, we noticed that Southwest Airlines' rate of growth is expected to accelerate meaningfully, with revenues forecast to grow 22%, well above its historical decline of 0.8% a year over the past five years. By contrast, our data suggests that other companies (with analyst coverage) in a similar industry are forecast to see their revenue grow 29% per year. Although Southwest Airlines' revenues are expected to improve, it seems that the analysts are still bearish on the business, forecasting it to grow slower than the wider industry.
The Bottom Line
The biggest concern is that the analysts reduced their earnings per share estimates, suggesting business headwinds could lay ahead for Southwest Airlines. On the negative side, they also downgraded their revenue estimates, and forecasts imply revenues will perform worse than the wider industry. The consensus price target held steady at US$46.92, with the latest estimates not enough to have an impact on their price targets.
Following on from that line of thought, we think that the long-term prospects of the business are much more relevant than next year's earnings. At Simply Wall St, we have a full range of analyst estimates for Southwest Airlines going out to 2023, and you can see them free on our platform here..
Even so, be aware that Southwest Airlines is showing 2 warning signs in our investment analysis , and 1 of those is potentially serious...
This article by Simply Wall St is general in nature. 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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