Southwest Airlines Co. (LUV): Debt Rating Warning Won’t Stop This Airline’s High

Southwest Airlines Co. (NYSE:LUV)’s gross and operating margins (TTM) are in line with competitors Delta and JetBlue Airways Corporation (NASDAQ:JBLU). Its gross margin is .22%, compared to .20% for Delta and .27% for JetBlue. Its operating margin is .05%, compared to .04% for Delta and .07% for JetBlue Airways Corporation (NASDAQ:JBLU).

Southwest’s earnings per share fall just about in the middle of those of Delta and JetBlue. It is $.51, compared to $1.05 and $.36 for Delta and JetBlue Airways Corporation (NASDAQ:JBLU), respectively.

Southwest Airlines Co. (NYSE:LUV)’s stock has risen almost 60% over the past six months, hitting a new 52-week high of $14.55 last week. It wasn’t alone in breaking this new high. So did United Continental. It set a new 52-week high of $35.27 last week on the news that its battery problem-plagued 787 jets were flying again.

Key to all of these airlines is maintaining and increasing the number of flights they offer, considering this directly affects their earnings. Airlines had been hampered by volatile oil prices and a slow down in passengers, however, that is projected to change. This year, the industry could see profits of up to $11 billion, according to the International Air Transport Association’s (IATA) projections for this year that show the industry generating $10.6 billion in profits this year, up from their earlier forecast of $8.4 billion.

As Fool writer Rick Munarriz pointed out last week, airlines are flying high again as sector consolidation is boosting airfares and cheaper jet fuel is resulting in widening profit margins. Southwest is poised to take advantage of the resuming good times for the sector, with analysts seeing its earnings nearly doubling this year.

So, Southwest Airlines Co. (NYSE:LUV)’s increased quarterly dividend and share repurchase authorization may cause angst to the holders of its debt. However, these actions, as well as the company’s comparable fundamentals to larger players like Delta Air Lines, Inc. (NYSE:DAL), make it an attractive price at this point.

The article Debt Rating Warning Won’t Stop This Airline’s High originally appeared on Fool.com and is written by Tedra DeSue.

Tedra DeSue has no position in any stocks mentioned. The Motley Fool recommends Southwest Airlines. Tedra is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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