SOUTHWEST AIRLINES CO

LUV

Forward P/E: 7.75×
Mkt cap: 18.4 B USD
EV: 20.1 B USD
Sector: Industrials
Coverage: 2007–2025
Currency: USD
Next event: Feb 5, 2027

JP Valuation

JP Score

19,6

Out of profile · window 5 years

JP entry price

OUT OF PROFILE

No target price is issued: the company falls outside the profile this method looks for.

Financial comments6

Interest coverage below 4×.
Small base / growth not extrapolable (CAGR above 40 %).
The share count grows: net dilution.
Stagnation: 3-year earnings CAGR at or below zero. It is scored, not cut: the penalty is charged by the Impairment modifier, where it is continuous and capped.
ROIC below the required return: growth destroys value.
Impairment of fcf: 85 % of the window, weighted by recency → 10.2 points. It is the only place in the model where a bad year subtracts.

Calculation comments2

No consensus candidate passed the plausibility contract: nothing is rewritten and the path falls to the next rung of the cascade.
The estimated net income does not sit plausibly against the base (3.64 the base in the first year, 2.29 annualised at the end): the consensus is discarded rather than trimmed, and the cascade drops a rung.

Quality factors

Each factor scores 0–100 on its own scale; the score is their weighted average.

Score	Weight → points
Growth consistency30 Earnings · fit to the log-linear line · σ_resid = 0.16422 %0 Earnings · hit rate · 26 %16 %0 Earnings · volatility · σ = 0.23811 %12 Revenue · fit to the log-linear line · σ_resid = 0.10014 %50 Revenue · hit rate · 100 %11 %94 Revenue · volatility · σ = 0.1467 %59 Forward · trajectory coherence · consensus 128.7 % vs. trend -15.8 %20 %36	·20 → 5,95
Growth pace57 Realized · -19.6 %50 %32 Expected · 128.7 %50 %83 Small base / growth not extrapolable (CAGR above 40 %).	·20 → 11,47
No recent stagnation40 Realized slowdown · 0.47×50 %3 Expected slowdown · -6.57×50 %77 3-year earnings CAGR at or below zero (-9.2 %): the engine has slowed. It is scored on the acceleration scale, not cut — a binary cut turned a continuous fact into a cliff, and fired on 36 % of the universe. Stagnation: 3-year earnings CAGR at or below zero. It is scored, not cut: the penalty is charged by the Impairment modifier, where it is continuous and capped.	·15 → 6,05
FCF quality0 FCF / net income conversion · -0.89×100 %0 Window chosen: last 5 years (the best of those evaluated). Alternative · last 3 years: conversion -2.02× → 0 points. Positive FCF in 1 of the 5 years in the window.	·15 → 0,00
Debt63 Net debt / EBITDA · 0.84×100 %63 Interest coverage (EBIT / \|interest\|) = 3.2×. Interest coverage below 4×.	·15 → 9,43
Return on invested capital (ROIC)8 Level (recency-weighted mean) · 3.2 %50 %0 Spread over the required return · −0.1 pp over the 10 % required30 %0 Trend · −1.1 pp over 5 years20 %41 Average ROIC (3.2 %) below the required return (10 %): growth destroys value. ROIC below the required return: growth destroys value.	·15 → 1,22
Weighted base	·100 → 34,13

Modifiers and penalties

The factors build the score; the modifiers correct it, within +23 / −28. Same 0–100 bar, 100 is always good.

Score	Range	Points
Gross margin trend · −2.2 pp accumulated over 4 years28	±8	-3,6
Altman Z'' · Z'' = 4.39100	0/−15	0,0
Shareholder returns · dilutes 0.3 % a year0 Effective buyback (net share count) · 0.3 % of dilution0 Dividend yield (last DPS / price today) · 1.9 % · does not count: the active branch is dilution—	+15/−5	-0,7
Impairment · 85 % · worst magnitude: fcf15 Earnings · 1.0 %99 Free cash flow · 85.1 %15 EBITDA · 0.0 %100	0/−12	-10,2
34,1 − 3,6 + 0,0 − 0,7 − 10,2 =19,6

Calculated on Sep 5, 2026

Score

Weight → points

Growth consistency30

Earnings · fit to the log-linear line · σ_resid = 0.16422 %0
Earnings · hit rate · 26 %16 %0
Earnings · volatility · σ = 0.23811 %12
Revenue · fit to the log-linear line · σ_resid = 0.10014 %50
Revenue · hit rate · 100 %11 %94
Revenue · volatility · σ = 0.1467 %59
Forward · trajectory coherence · consensus 128.7 % vs. trend -15.8 %20 %36

·20 → 5,95

Growth pace57

Realized · -19.6 %50 %32
Expected · 128.7 %50 %83
Small base / growth not extrapolable (CAGR above 40 %).

·20 → 11,47

No recent stagnation40

Realized slowdown · 0.47×50 %3
Expected slowdown · -6.57×50 %77
3-year earnings CAGR at or below zero (-9.2 %): the engine has slowed. It is scored on the acceleration scale, not cut — a binary cut turned a continuous fact into a cliff, and fired on 36 % of the universe.
Stagnation: 3-year earnings CAGR at or below zero. It is scored, not cut: the penalty is charged by the Impairment modifier, where it is continuous and capped.

·15 → 6,05

FCF quality0

FCF / net income conversion · -0.89×100 %0
Window chosen: last 5 years (the best of those evaluated).
Alternative · last 3 years: conversion -2.02× → 0 points.
Positive FCF in 1 of the 5 years in the window.

·15 → 0,00

Debt63

Net debt / EBITDA · 0.84×100 %63
Interest coverage (EBIT / |interest|) = 3.2×.
Interest coverage below 4×.

·15 → 9,43

Return on invested capital (ROIC)8

Level (recency-weighted mean) · 3.2 %50 %0
Spread over the required return · −0.1 pp over the 10 % required30 %0
Trend · −1.1 pp over 5 years20 %41
Average ROIC (3.2 %) below the required return (10 %): growth destroys value.
ROIC below the required return: growth destroys value.

·15 → 1,22

Weighted base

·100 → 34,13

Score

Range

Points

Gross margin trend · −2.2 pp accumulated over 4 years28

±8

-3,6

Altman Z'' · Z'' = 4.39100

0/−15

0,0

Shareholder returns · dilutes 0.3 % a year0

Effective buyback (net share count) · 0.3 % of dilution0
Dividend yield (last DPS / price today) · 1.9 % · does not count: the active branch is dilution—

+15/−5

-0,7

Impairment · 85 % · worst magnitude: fcf15

Earnings · 1.0 %99
Free cash flow · 85.1 %15
EBITDA · 0.0 %100

0/−12

-10,2

34,1 − 3,6 + 0,0 − 0,7 − 10,2 =19,6