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Here’s What Influenced the Outlook for Southwest Airlines

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What drove revenue growth for Southwest Airlines?

Southwest Airlines’ (LUV) operating revenue grew 3% and 4% in 2016 and 9M17, respectively. Passenger and other revenue drove growth in both periods.

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What led to the fall in EPS?

LUV’s gross profit rose 4% and 3% in 2016 and 9M17, respectively. Operating expenses increased 9% and 6% in 2016 and 9M17, respectively. As a result, operating income fell 9% and 6% in 2016 and 9M17, respectively. Adjusted operating income remained flat in 2016 and fell 15% in 9M17.

Other expenses decreased in 2016 before rising in 9M17. Adjusted net income rose 1% in 2016 before falling 14% in 9M17. Adjusted diluted EPS (earnings per share) rose 7% in 2016 before falling 9% in 9M17. Share buybacks enhanced EPS.

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Dividend and price growth

LUV’s dividend per share rose 32% and 27% in 2016 and 2017, respectively. Prices rose 16% and 17% in 2016 and 2017, respectively. That led to a downward sloping dividend yield curve. A forward PE (price-to-earnings) ratio of 18.4x and a dividend yield of 0.8% compare to a negative sector average forward PE ratio of 16.0x and a dividend yield of 1.1%.

How does it compare to the broader indexes?

The S&P 500 (SPX-INDEX) (SPY) offers a dividend yield of 2.2%, a PE ratio of 23.4x, and a YTD (year-to-date) return of 19.6%. The Dow Jones Industrial Average (DJIA-INDEX) (DIA) has a dividend yield of 2.2%, a PE ratio of 22.3x, and a YTD return of 25.1%. The NASDAQ Composite (COMP-INDEX) (ONEQ) has a PE ratio of 28.2x and a YTD return of 24.8%.

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What’s LUV’s operating revenue and EPS outlook?

Southwest Airlines’ operating revenue is being projected to have a 3% and 6% growth in 2017 and 2018, respectively. Its diluted EPS is projected to fall 5% in 2017 before rising 27% in 2018.

Dividend ETFs with exposure to Southwest Airlines

The First Trust NASDAQ Rising Dividend Achievers ETF (RDVY) has a PE ratio of 15.7x and a dividend yield of 1.2%. The WisdomTree US Dividend Growth ETF (DGRW) has a PE ratio of 20.3x and a dividend yield of 2.4%.

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