Southwest Airlines Co (Southwest Airlines Co) Intrinsic Value: DCF (FCF Based) : $-38.50 (As of Apr. 27, 2024)

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What is Southwest Airlines Co Intrinsic Value: DCF (FCF Based)?

As of today (2024-04-27), Southwest Airlines Co's intrinsic value calculated from the Discounted Cash Flow model is $-38.50.

Note: Discounted Cash Flow model is only suitable for predictable companies (Business Predictability Rank higher than 1-Star). If the company's predictability rank is 1-Star or Not Rated, result may not be accurate due to the low predictability of business and the data will not be stored into our database.

Southwest Airlines Co's Predictability Rank is 1-Star. Thus, this page is only used for demonstration purposes and the DCF related results in the screener and portfolio will appear as zero.

Margin of Safety (FCF Based) using Discounted Cash Flow model for Southwest Airlines Co is N/A.

The industry rank for Southwest Airlines Co's Intrinsic Value: DCF (FCF Based) or its related term are showing as below:

LUV's Price-to-DCF (FCF Based) is not ranked ^*
in the Transportation industry.
Industry Median: 0.67
* Ranked among companies with meaningful Price-to-DCF (FCF Based) only.

Southwest Airlines Co Intrinsic Value: DCF (FCF Based) Historical Data

The historical data trend for Southwest Airlines Co's Intrinsic Value: DCF (FCF Based) can be seen below:

* For Operating Data section: All numbers are indicated by the unit behind each term and all currency related amount are in USD.
* For other sections: All numbers are in millions except for per share data, ratio, and percentage. All currency related amount are indicated in the company's associated stock exchange currency.

* Premium members only.

Southwest Airlines Co Intrinsic Value: DCF (FCF Based) Chart

Southwest Airlines Co Annual Data

Trend

Dec14

Dec15

Dec16

Dec17

Dec18

Dec19

Dec20

Dec21

Dec22

Dec23

Intrinsic Value: DCF (FCF Based)

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230.78

Southwest Airlines Co Quarterly Data
	Jun19	Sep19	Dec19	Mar20	Jun20	Sep20	Dec20	Mar21	Jun21	Sep21	Dec21	Mar22	Jun22	Sep22	Dec22	Mar23	Jun23	Sep23	Dec23	Mar24
Intrinsic Value: DCF (FCF Based)	Get a 7-Day Free Trial															-	-	-	-	-

Competitive Comparison of Southwest Airlines Co's Intrinsic Value: DCF (FCF Based)

For the Airlines subindustry, Southwest Airlines Co's Price-to-DCF (FCF Based), along with its competitors' market caps and Price-to-DCF (FCF Based) data, can be viewed below:

* Competitive companies are chosen from companies within the same industry, with headquarter located in same country, with closest market capitalization; x-axis shows the market cap, and y-axis shows the term value; the bigger the dot, the larger the market cap. Note that "N/A" values will not show up in the chart.

Southwest Airlines Co's Price-to-DCF (FCF Based) Distribution in the Transportation Industry

For the Transportation industry and Industrials sector, Southwest Airlines Co's Price-to-DCF (FCF Based) distribution charts can be found below:

* The bar in red indicates where Southwest Airlines Co's Price-to-DCF (FCF Based) falls into.

Southwest Airlines Co Intrinsic Value: DCF (FCF Based) Calculation

This is the intrinsic value calculated from the Discounted Cash Flow model with default parameters. In a discounted cash flow model, the future cash flow is estimated based on a cash flow growth rate and a discount rate. The cash flow of the future is discounted to its current value at the discount rate. All of the discounted future cash flow is added together to get the current intrinsic value of the company.

Usually a two-stage model is used when calculating a stock's intrinsic value using a discounted cash flow model. The first stage is called the growth stage; the second is called the terminal stage. In the growth stage the company grows at a faster rate. Because it cannot grow at that rate forever, a lower rate is used for the terminal stage.

GuruFocus DCF calculator is a two-stage model. The default values are defined as:

1. Discount Rate: d = 11%
A reasonable discount rate assumption should be at least the long term average return of the stock market, which can be estimated from risk free rate plus risk premium of stock market. GuruFocus uses 10-Year Treasury Constant Maturity Rate as the risk-free rate and rounded up to the nearest integer. It is updated daily. The current risk-free rate is 4.66%. Please go to Economic Indicators page for more information. Please note that we use the 10-Year Treasury Constant Maturity Rate of the country/region where the company is headquartered. If the data for that country/region is not available, then we will use the 10-Year Treasury Constant Maturity Rate of the United States as default. Then we added a risk premium of 6% to get the estimated discount rate. Some investors use their expected rate of return, which is also reasonable. A typical discount rate can be anywhere between 6% - 20%.

2. Growth Rate in the growth stage: g1 = 20%
The Growth Rate in the growth stage is initially set as the default 10-Year FCF Growth Rate (Per Share). In cases where the 10-year growth rate is unavailable, it defaults to using the 5-Year FCF Growth Rate (Per Share). If both the 10-year and 5-year growth rates are unavailable, the system defaults to the 3-Year FCF Growth Rate (Per Share).
However, it's important to note that there is a growth rate range. If the calculated growth rate exceeds 20%, it will be capped at 20%. Conversely, if the calculated growth rate falls below 5%, it will be adjusted to 5% to maintain a reasonable range.
=> Southwest Airlines Co's average Free Cash Flow Growth Rate in the past 3 years was 41.60%, which is no less than 20%. GuruFocus defaults => Growth Rate: 20%

3. Years of Growth Stage: y1 = 10

4. Terminal Growth Rate: g2 = 4%

5. Years of Terminal Growth: y2 = 10

6. Free Cash Flow per Share: fcf = $-1.232.
However, GuruFocus DCF calculator is actually a Discounted Earnings calculator, the EPS without NRI is used as the default. The reason we are doing this is we found that historically stock prices are more correlated with earnings than free cash flow.

All of the default settings can be changed and the results are calculated automatically.

Southwest Airlines Co's Intrinsic Value: DCF (FCF Based) for today is calculated as

Intrinsic Value: DCF (FCF Based)	=	Free Cash Flow per Share	*	{[(1+g1)/(1+d)	+	(1+g1)^2/(1+d)^2	+	...	+	(1+g1)^10/(1+d)^10]
	+	(1+g1)^10/(1+d)^10	*	[(1+g2)/(1+d)	+	(1+g2)^2/(1+d)^2	+	...	+	(1+g2)^10/(1+d)^10]}

set x = (1+g1)/(1+d) = (1+0.2)/(1+0.11) = 1.0810810810811
and y = (1+g2)/(1+d) = (1+0.04)/(1+0.11) = 0.93693693693694

Intrinsic Value: DCF (FCF Based)

Free Cash Flow per Share

{[x

x^2

...

x^10]

x^10

y^2

...

y^10]}

Free Cash Flow per Share

(1-x^10)

(1-x)

x^10

(1-y^10)

(1-y)]

-1.232

31.2501

-38.50

Margin of Safety (FCF Based)	=	(Intrinsic Value: DCF (FCF Based)	-	Current Price)	/	Intrinsic Value: DCF (FCF Based)
	=	(-38.5	-	27.03)	/	-38.5
	=	N/A

Southwest Airlines Co (NYSE:LUV) Intrinsic Value: DCF (FCF Based) Explanation

Unlike valuation methods such as Net Current Asset Value, Tangible Book per Share, Graham Number, Median PS Value etc, discounted Cash Flow model evaluates the companies based on their future earnings power instead of their assets.

Be Aware

What you need to know about the DCF model:

1. The DCF model evaluates a company based on its future earnings power
2. Growth is taken into account; therefore a faster growth company is worth more if everything else is the same.
3. Since we are projecting future growth, it is assumed that the company will grow at the same rate as it did during the past 10 years. Therefore this model works better for the companies that have relatively consistent performance.
4. The DCF model works poorly for inconsistent performers such as cyclicals.
5. What discount rate should you use? Your expected return from the investment is a good discount rate assumption.
6. A larger margin of safety should be required for companies with less predictable businesses.

You can screen for stocks that trade below their Intrinsic Value: DCF (FCF Based) and Intrinsic Value: DCF (Earnings Based) with the GuruFocus All-in-One Screener. Companies with a high Predictability Rank that trade at a discount to their Intrinsic Value: DCF (FCF Based) and Intrinsic Value: DCF (Earnings Based) can be found in the screen of Undervalued Predictable Companies.

Southwest Airlines Co Intrinsic Value: DCF (FCF Based) Related Terms

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Southwest Airlines Co (Southwest Airlines Co) Business Description

Industry

GURUFOCUS.COM » STOCK LIST » Industrials » Transportation » Southwest Airlines Co (NYSE:LUV) » Definitions » Intrinsic Value: DCF (FCF Based)

Comparable Companies

Traded in Other Exchanges

LUV:Mexico SWN:Germany SWN:Germany S1OU34:Brazil LUV:Austria

Address

P.O. Box 36611, Dallas, TX, USA, 75235-1611

Website

https://www.southwest.com

Southwest Airlines is the largest domestic air carrier in the United States by passengers boarded. Southwest operates over 700 aircraft in an all-Boeing 737 fleet. Despite offering some longer routes and a few perks for business travelers, the airline predominantly specializes in short-haul, leisure flights, using a point-to-point network. Southwest operates a low-cost carrier business model.

Executives

Roy Blunt	director	2702 LOVE FIELD DRIVE, HDQ 4GC, DALLAS TX 75235
Elaine Mendoza	director	2223 POSTOAK COURT, SAN ANTONIO TX 78248
Eduardo F Conrado	director	1303 E. ALGONQUIN ROAD, SCHAUMBURG IL 60196
Ryan C. Green	officer: EVP, Chief Commercial Officer	2702 LOVE FIELD DRIVE, HDQ 4GC, DALLAS TX 75235
Jill A. Soltau	director	123 SOUTH FRONT STREET, MEMPHIS TN 38103
John T Montford	director	C/O SOUTHWEST AIRLINES CO, 2702 LOVE FIELD DR PO BOX 36611, DALLAS TX 75235-1611
Christopher P. Reynolds	director	2702 LOVE FIELD DRIVE, HDQ 4GC, DALLAS TX 75235
David P Hess	director	390 PARK AVENUE, NEW YORK NY 10022
Thomas W. Gilligan	director	C/O KB HOME, 10990 WILSHIRE BOULEVARD, 7TH FLOOR, LOS ANGELES CA 90024
Linda B. Rutherford	officer: EVP People and Communications	2702 LOVE FIELD DRIVE, HDQ 4GC, DALLAS TX 75235
Robert E Jordan	officer: EVP - Strategy and Planning	C/O SOUTHWEST AIRLINES CO., 2702 LOVE FIELD DRIVE, DALLAS TX 75235
Gregory D Wells	officer: EVP, Daily Operations	2702 LOVE FIELD DRIVE, HDQ 4GC, DALLAS TX 75235
Alan Kasher	officer: EVP Daily Operations	2702 LOVE FIELD DRIVE, HDQ 4GC, DALLAS TX 75235
Mark R Shaw	officer: SVP,Gen Counsel,Corp.Secretary	2702 LOVE FIELD DRIVE, HDQ 4GC, DALLAS TX 75235
Tammy Romo	officer: SR VP Finance & CFO	C/O SOUTHWEST AIRINES CO., 2702 LOVE FIELD DR., DALLAS TX 75235