DCF Studio

    LUV · NYQ · Industrials

    Southwest Airlines Co.

    Also onShortfallConsensus DriftCrosscheck

    Implied value per share

    USD -7.41

    Market price

    USD 43.96

    Implied upside

    -116.9%

    10-year forecast · Perpetuity growth terminal value · Mid-year discounting · Base case · Price 2026-11-02 · Accounts to 2025-12-31

    AdjustedFree cashflow is negative in at least one forecast year, so terminal value carries most of the valuation.
    AdjustedCapital expenditure runs at 11.8% of revenue against depreciation of 5.8%. A perpetuity has to be a steady state, so the forecast tapers capex to maintenance at depreciation plus the reinvestment terminal growth requires (g/ROIC of NOPAT), and the terminal year carries on from there. The bridge is shown under Terminal Value.

    Value Per Share

    Perpetuity growth
    USD -7.41-116.9%
    Exit multiple
    USD 23.86-45.7%
    Market price
    USD 43.96

    Same forecast, different terminal treatment. Percentages vs price.

    Forecast Cashflows

    Reporting currency (USD). Outflows negative.

    -1609m-542m526mFY26FY27FY28FY29FY30FY31FY32FY33FY34FY35
    Nominal FCFFDiscounted to todayUSD
    LineFY26FY27FY28FY29FY30FY31FY32FY33FY34FY35CAGR
    RevenueUSD 33.5bnUSD 35.8bnUSD 38.0bnUSD 40.2bnUSD 42.3bnUSD 44.2bnUSD 46.1bnUSD 47.7bnUSD 49.2bnUSD 50.4bn+4.6%
    EBITUSD 655.8mUSD 700.2mUSD 743.8mUSD 786.3mUSD 826.9mUSD 865.2mUSD 900.7mUSD 932.9mUSD 961.2mUSD 985.2m+4.6%
    NOPATUSD 518.1mUSD 553.1mUSD 587.6mUSD 621.1mUSD 653.3mUSD 683.5mUSD 711.6mUSD 737.0mUSD 759.3mUSD 778.3m+4.6%
    Add depreciation & amortisationUSD 1.9bnUSD 2.1bnUSD 2.2bnUSD 2.3bnUSD 2.4bnUSD 2.6bnUSD 2.7bnUSD 2.8bnUSD 2.8bnUSD 2.9bn+4.6%
    Less capital expenditureUSD -3.9bnUSD -4.0bnUSD -4.0bnUSD -4.0bnUSD -3.9bnUSD -3.8bnUSD -3.7bnUSD -3.6bnUSD -3.4bnUSD -3.1bn-2.5%
    Capex, % of revenue11.8%11.1%10.5%9.9%9.3%8.7%8.1%7.5%6.8%6.2%-
    Less increase in working capitalUSD -118.3mUSD -49.1mUSD -48.3mUSD -46.9mUSD -44.9mUSD -42.4mUSD -39.2mUSD -35.5mUSD -31.3mUSD -26.6m-15.3%
    Free cashflow to firmUSD -1.6bnUSD -1.4bnUSD -1.3bnUSD -1.1bnUSD -883.4mUSD -647.1mUSD -385.1mUSD -99.9mUSD 205.1mUSD 526.0m-
    Discount factor0.95950.88340.81330.74870.68930.63460.58430.53790.49520.4559-
    Present valueUSD -1.5bnUSD -1.3bnUSD -1.0bnUSD -817.4mUSD -608.9mUSD -410.7mUSD -225.0mUSD -53.8mUSD 101.5mUSD 239.8m-
    Present Value Of The ForecastUSD -5.6bn

    Discount Rate

    Source shown per component. All overridable above.

    Risk-free rate4.89%US 10-year Treasury (^TNX), 2026-11-02
    Equity risk premium4.23%Damodaran, January 2026
    Beta1.147Reported 1.219, pulled toward 1.0 (Blume)
    Cost of equity9.74%Risk-free + beta x equity risk premium
    Cost of debt5.78%Risk-free + 89bp, the spread for a A- rating at 3.8x interest cover. Book interest / average debt was lower, at 1.6%.
    Market capitalisationUSD 21.5bn78.2% of capital
    Total debtUSD 6.0bn21.8% of capital, book value as a proxy
    Tax rate21.0%Effective, capped at statutory
    WACC8.62%E/V x Re + D/V x Rd x (1 - t)

    Terminal Value

    Perpetuity growth is intrinsic. The exit multiple defaults to the company's current EV/EBITDA, so it answers a different question - what the shares are worth if today's rating holds and EBITDA grows as forecast.

    Perpetuity growth at 2.50%

    Value per shareUSD -7.41

    -304% of EV

    Forecast FCFF, final year
    USD 526.0m
    Capex at depreciation, working capital in reinvestment
    USD 778.3m
    Less reinvestment at g/ROIC (29.0% of NOPAT)
    USD -225.8m
    Capitalised
    USD 552.6m
    ROIC (WACC floor)
    8.6%
    Terminal value, undiscounted
    USD 9.3bn
    Terminal value, discounted
    USD 4.2bn
    Enterprise value
    USD -1.4bn
    Less net debt
    USD 2.8bn
    Equity value
    USD -4.1bn

    Exit at 12.2x EBITDA

    Value per shareUSD 23.86

    135% of EV

    Terminal value, undiscounted
    USD 47.5bn
    Terminal value, discounted
    USD 21.7bn
    Enterprise value
    USD 16.1bn
    Less net debt
    USD 2.8bn
    Equity value
    USD 13.3bn

    Sensitivity

    Value per share (USD) by discount rate and long-run growth.

    Long-run growth
    Discount rate1.50%2.00%2.50%3.00%3.50%
    6.62%-3.48-3.74-3.99-4.25-4.50
    7.62%-5.56-5.77-5.98-6.19-6.40
    8.62%-7.07-7.24-7.41-7.59-7.76
    9.62%-8.17-8.32-8.47-8.62-8.77
    10.62%-9.01-9.13-9.26-9.39-9.51

    Outlined: this model. Green text: above today's price of 43.96. Shading: distance from this model's own value.

    Priced In

    What each input would have to be to justify the current price, one at a time.

    InputActualModelImplied
    Revenue growth, a year5.6%6.0%36.7%
    EBIT margin4.3%2.0%9.0%
    Discount rate-8.6%2.7%
    Download as Excel

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    Yahoo Finance and RBA data. General information, not advice. Methodology.