American, Delta, United and Southwest are in.
The consensus among those who analyse Buffett’s every move reckon it’s the drop in oil prices and industry changes that have allowed airlines to generate higher returns than they have previously.
In my humble opinion out of the four airlines, Southwest Airlines has shown the steadiest and most progressive growth in terms of revenues, ROIC, earnings and dividends.
Here’s what I mean:
Southwest Airlines (NYSE: LUV) Financials
All the right things going on here with these numbers: reduced share count, increasing book value, steady revenue growth and earnings growth and much more.
Return on invested capital rose from 8.05% in 2007 to 20.21% in 2016.
2012 seems to be the year that higher growth rates began and the year it became an appealing investment.
Southwest’s current PE Ratio for the trailing twelve months is 15.7 is either expensive or cheap depending on which side of the value fence you sit:
- If you beleive Southwest’s growth rates can continue for some time into the future then for a growth stock a PE of 15.7 is a good price.
- If you take the PE 10 into account then at 47, it’s expensive stock
Southwest Airlines 5 Year Chart
Source: Yahoo! Finance
On 26th January this year, Southwest reported a record annual profit and a 44th consecutive year of profitability.
Steady and stable – I think so, but again the reliability of this steadiness is a relatively recent phenomenon.
Are Their Airlines On The FTSE 100 Worth A Punt?
Eazyjet (LSE: EZJ) has PE ratio of 9 for the trailing twelve months and a an 5.7% dividend yield.
The five year average PE is 11.18.
It has low debt as measured against it’s equity but has recently taken an earnings, profits and revenue nosedive:
Pre-tax profit margin decreased by 4 percentage points to 10.6% (profit before tax of GBP495 million in the 2016 financial year versus GBP686 million in the 2015 financial year) mainly due to the decline in revenue and foreign exchange impact.
Final results, 15 November 2016
Eazyjet also acknowledge that although fuel costs will continue to decline there are significant one off charges and foreign exchange costs that will likely impact revenues further over the next six to 12 months.
It has also cut it’s dividend last November and is in the midst of an expansion plan.
It’s a cheap stock and the share price has declined 48% since it’s 2015 high of 1915p.
Returns on invested capital have been in the low to mid twenties but last November’s results brought that down to the mid teens.
Eazyjet are not without their problems but it’s stock remains cheap.