Southwest Airlines [S&P 500; United States] drops 3.6% on high volatility December 08, 2011

STOCKS

Southwest Airlines (LUV.N) traded between an intraday low of US$8.25 and a high of US$8.49, suggesting a trading opportunity between peaks and troughs. The average daily volatility of 2.8% places the stock in the 3rd quartile in the market meaning it is mildly volatile. Today its volatility (highest price minus lowest price/lowest price) of 2.9% was 3.0 times the average daily volatility of 1.0%, up from 2.9% on Wednesday and 2.6% on Tuesday. A price fall on high volatility is a bearish signal. The stock price fell 31.0c (or 3.6%) to close at US$8.27, ending a three-day streak of rises. Compared with the Dow Jones Industrials index, which fell 198.7 points (or 1.6%) on the day, this was a relative price change of -2.0%.

PRICE VOLUME DYNAMICS

Volume: there were 7,442,497 shares worth US$61.6 million traded. The volume was 0.7 times average trading of 3,409,360 shares.

% Discount to high: the last price is at a discount of 39.2% to the 12-month high of US$13.59 eleven months ago on 05 Jan, 2011.

% Premium to low: the last price is at a premium of 15.7% to the 12-month low of US$7.15 two months ago on 04 Oct, 2011.

Volume weighted price (VWP): the price is at a premium of 1.7% to the 1-month volume weighted average price (VWP) of US$8.133. Given that this premium has exceeded 1.7% seventy-three times and been under 1.7% thirty-three times in the last year, the upside:downside probability is estimated at 73:33 or 2.2:1.

Beta: The Beta of this stock is 1.25. A Beta greater than 1 suggests this is a high risk, high return stock with volatility greater than that of the market.

Standard Deviation (SD): SD is a statistical measure of deviation from the mean. The SD of 2.1% gives it a percentile rank of 37 meaning that 37% of stocks in the global market are less volatile than this stock.

Trailing month: in the last 21 trading sessions there has been a net rise of 1.22%; the stock has advanced 10 times and the biggest one day rise was 5.7% on Nov 30.

OPEN INTEREST TREND AND INTERPRETATION

Same day trend: open interest crashed 19.1% from 49,965 to 40,438. Combined with the price falling 3.6% this suggests the market is strengthening.

Trailing one week trend: Open interest added 2.6% from 39,432 a week ago while the stock dipped 0.1% from US$8.33 a week ago. Combined with the decrease of price this suggests the market is weak.

Trailing one month trend: open interest crashed 17.2% from 48,854 a month ago while the stock weakened 2.4% from US$8.47 a month ago. Combined with the falling price this also suggests the market is strengthening.

Open interest as % of issued capital: 4,043,800 shares, representing 0.5% of the issued capital.

[ranked 1198 out of 1724 stocks in descending order]

Put:call ratio: open interest contracts on exchange traded options included 11,813 put contracts and 28,625 call contracts.

The put:call ratio was 0.4, up 5.6% for the day, down 7.2% in the past week and down 1.4% in the past month.

Top three traded call options [volume of contracts in brackets; 1 contract is 100 shares]

Exercise US$9.0; Expires Mar 17: 40.0c down 11.1% [84]

Exercise US$9.0; Expires Jun 16: 60.0c down 14.3% [57]

Exercise US$9.0; Expires Jan 21: 15.0c down 25.0% [55]

Top three traded put options [volume of contracts in brackets; 1 contract is 100 shares]

Exercise US$8.0; Expires Dec 17: 10.0c up 100.0% [70]

Exercise US$7.50; Expires Jan 21: 20.0c up 33.3% [70]

Exercise US$8.0; Expires Mar 17: 50.0c up 11.1% [50]

Access comprehensive Stock Research on http://www.buysellsignals.com/20211186

PRICE PERFORMANCE RANK IN SECTORS

The stock is in 2 sectors.

The following index and sectors fell setting the trend for its fall of 3.6%:

Dow Jones Industrials index of 30 stocks traded today, which was down 198.7 points or 1.6% to 11,997.7;

The index of Top 5000 stocks by MCap, which was down 121.3 points or 1.5% to 8,182.4;

Airlines sector of 33 stocks traded today, which was down 78.9 points or 1.4% to 5,651.7

RELATIVE VALUATION INDICATORS [RVI] FUNDAMENTAL ANALYSIS

The stock meets the following value criteria set by Benjamin Graham:

-"An earnings-to-price yield of at least twice the triple-A bond"; the stock's earning yield of 7.1% is 3.58 times the triple-A bond yield of 2.0%.

The stock has a score of 6 out of 9 set by Joseph Piotroski [pass mark >=5 ]:

Positive net income; Positive operating cashflow; Return on assets improvement [from 0.7% to 3.0%]; Good quality of earnings [operating cashflow exceeds net income]; Improvement in current ratio from 1.25% to 1.29%; Improvement in asset turnover [growth in revenue of 16.95% exceeded growth in assets of 8.37%].

Other Bullish Signals:

- The Price to Book of 1.0 lower than average of 1.6 for the Airlines sector and 2.0 in the global market of top 5000 stocks by MCap. We estimate the shares are trading at a current year Price to Book of 0.9 and a forward year Price to Book of 0.8.

- Return on Assets of 3.0% versus sector average of 2.7% and market average of 1.8%.

- Return on Capital Employed of 7.5% versus sector average of 6.7% and market average of 11.4%.

- The P/E of 14.0 multiplied by the P/NTA of 1.0 is 14.5. Being less than the Benjamin Graham benchmark of 22.5 the stock appears undervalued.

- The company is cash rich with Cash to Market Capitalisation at 19.6%.

Bearish Signals:

- Price/Earnings of 14.0 versus sector average of 10.1 and market average of 13.4. We estimate the shares are trading at a current year P/E of 7.8 and a forward year P/E of 4.3.

- Price/Sales of 0.53 versus sector average of 0.4 and market average of 1.0. We estimate the shares are trading at a current year Price/Sales of 0.4 and a forward year Price/Sales of 0.3.

- Return on Equity of 7.4% versus sector average of 10.6% and market average of 10.8%.

- Total Liabilities/ EBITDA of 6.0 is more than or equal to 5, this compares unfavourably with Joseph Piotroski benchmark of 5.

- Dividend Yield of 0.3% (based on trailing 12 months dividends of 2.25c) versus sector average of 1.4% and market average of 2.3%. The company paid out a dividend of 2.25c in the past 12 months. The 10-year bond yield is currently 2.0%.

RELATIVE VALUATION INDICATORS [RVI] TECHNICAL ANALYSIS

Bullish Signals:

- The Moving Average Convergence Divergence (MACD) indicator of 12-day Exponential Moving Average (EMA) minus the 26-day EMA is positive suggesting a bullish signal. Both the 12-day EMA as well as the 26-day EMA are rising, another bullish signal.

Bearish Signals:

- The price dipped 0.1% in the last week and weakened 2.4% in the last month.

- Compared with the Dow Jones Industrials index which fell 1.4% for the month, this represented a relative price decrease of 0.9% for the month.

- In the global market of top 5000 stocks by MCap, the stock has a 6-month relative strength of 24 indicating it is trailing 76.0% of its global peers.

- The price to 50-day EMAP ratio is 0.99. In the past 200 days this ratio has been under 0.99 28 times suggesting downside. The 50-day EMAP has decreased to US$8.324. A decrease is another bearish indicator.

- In the last three months the stock has hit a new 52-week low thrice.

- The price to 200-day MAP ratio is 0.82, a bearish indicator. In the past 200 days this ratio has been under 0.82 83 times suggesting further downside. The 50-day MAP of US$8.268 is lower than the 200-day MAP of US$10.113, a bearish indicator. The 200-day MAP has decreased to US$10.113. A decrease is another bearish indicator.

- the Stochastic indicator of 89.7 has broken through the overbought line of 80.

SHAREHOLER RETURNS

Trailing one week: the stock rose three times (60% of the time) and fell twice (40% of the time). The volume was 0.8 times average trading of 17,046,800 shares. The value of US$1,000 invested a week ago is US$987 [vs USD999 for the Dow Jones Industrials index], for a capital loss of US$13 (or loss of 1.3%).

Trailing one month: the stock fell eleven times (52% of the time) and rose ten times (48% of the time). The volume was 0.9 times average trading of 75,005,920 shares. The value of US$1,000 invested a month ago is US$977 [vs USD988 for the Dow Jones Industrials index], including a capital loss of US$24 (or loss of 2.4%) and dividend reinvested of56c.

Trailing one year: the value of US$1,000 invested one year ago is US$646 [vs USD1,084 for the Dow Jones Industrials index], including a capital loss of US$355 and dividend reinvested of US$1. The total return to shareholders for 1 year is -35.4%.

Trailing five years: the value of US$1,000 invested five years ago is US$531, including a capital loss of US$470 and dividend reinvested of US$1.

The present value of US$1000 invested at a previous date is shown below:

FINANCIALS

Quarterly Report released on December 02, 2011; year-on-year comparisons with previous corresponding period:

In the quarter to September 30, 2011 total revenue was up 35.1% to US$4.3 billion; net loss of US$140 million.

Annual Report for the year ended December 31, 2010 (year-on-year comparisons with previous corresponding period)-

EPS of 61.0 U.S. cents.

Favourable Changes: a track record of profits in 4 of the last 4 years; total liabilities to EBITDA down 34.4% to 6.0. While this compares unfavourably with the Joseph Piotroski benchmark of <5, the trend is favourable; although the Total Liabilities to Operating Cash Flow ratio of 5.9 also compares unfavourably with the Joseph Piotroski benchmark of <4, it had improved by 34.0% from the previous year.; total liabilities to total assets down 3.2% to 0.6; current ratio up 3.2% to 1.3; Net tangible assets per share up 13.6% to $US8.36; Working capital to total assets up 35.6% to 6.3%; Retained earnings to total assets up 0.2% to 34.9%; Sales to total assets up 6.8% to 0.8.

Major Common Size Ratios: total current assets to total assets up from 23.5% to 27.7%; short-term investments to total assets up from 10.4% to 14.7%; fixed assets to total assets up from 13.5% to 13.7%; cash to total assets up from 7.8% to 8.2%; other non-current assets to total assets up from 1.9% to 3.9%; EBITDA to Sales up from 9.3% to 12.7%; EBIT to Sales up from 3.4% to 7.5%; profit before tax to sales up from 1.6% to 6.2%; depreciation to sales down from 6.0% to 5.2%; profit after tax to sales up from 1.0% to 3.8%.

MARKET SHARE

Southwest Airlines vs Airlines sector [Airlines sector Total in Brackets]

Net Profit of US$459 million [4.1% of aggregate sector net profit of US$11.1 billion; up from -1.8% in the previous year.]

EBIT of US$912 million [4.9% of aggregate sector EBIT of US$18.7 billion; down from 18.7% in the previous year.]

ISSUED CAPITAL

Based on 778,522,000 issued shares the market capitalisation is US$6.4 billion. It is the world's largest Airlines company by market capitalisation.

ACTIVITIES

It is the world's 12th largest Airlines company by assets.

Southwest Airlines Co. (Southwest) is a passenger airline that provides scheduled air transportation in the United States. As of December 31, 2008, the Company operated 537 Boeing 737 aircraft and provided service to 64 cities in 32 states throughout the United States. The Company focuses principally on point-to-point service, rather than hub-and-spoke service. Approximately 78% of the Company's customers fly non-stop. Southwest predominantly serves short-haul routes with high frequencies. It complements this service with more medium to long-haul routes, including transcontinental service.

TOP MANAGEMENT

The chairman and chief executive officer is Gary C. Kelly and the chief financial officer is Laura H. Wright.

BUSINESS NEWS ROUND UP

The last 5 snippets are:

December 05: Southwest Airlines Co. to Present at the Rodman & Renshaw 2011 Airline Conference

[News Story] DALLAS, Dec. 5, 2011 /PRNewswire/ -- Southwest Airlines Co. (NYSE: LUV) has been invited to speak at the Rodman & Renshaw 2011 Airline Conference. Rodman & Renshaw will be webcasting the audio presentation live, and a link to the webcast will be made available via the Investor Relations homepage on the Southwest Airlines website.

November 17: Southwest Airlines recommends dividend

Southwest Airlines today announced a quarterly dividend of 0.45c per share. The record date is December 08, 2011 and it is payable on January 05, 2012.

November 15: Southwest Airlines Named Top Military Friendly Employer by G.I. Jobs

DALLAS, Nov. 15, 2011 /PRNewswire/ -- Southwest Airlines (NYSE: LUV) announced today that it has been designated a 2012 Top Military Friendly Employer(Registered) by G.I. Jobs. This marks the third consecutive year the Company has been included in the Top 100 Military Friendly Employers(Registered) list, which was drawn from a sample of 5,000 companies whose annual revenues exceeded $500 million.

November 13: Southwest Airlines and AirTran Airways Announce Summer Flight Schedules

[News Story] http://www.nasdaq.com/aspx/companynewsStoryPrint.aspxstoryid=201111131300pr_news_usprx____da05460 Source: NASDAQ Stock Exchange

October 07: Southwest Airlines Launches Nationwide Fare Sale For Holiday Travel

[News Story] DALLAS, Oct. 7, 2011 /PRNewswire/ -- It's time to plan your winter vacation because Southwest Airlines (NYSE: LUV) has lowered its fares! The airline announced today a holiday sale; offering Customers air fares starting as low as $59 one-way to select destinations nationwide (see fare rules below).

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