Starting this week I’ll be providing a series of articles on Cashflow Analysis and Capital Allocation on the Top 30 companies in our Large Cap 1000 Screener, which incidentally you can access for free here.
Today, I’m going to take a look at Southwest Airlines Co (NYSE:LUV).
One of the things I like most about Southwest can be found in a quick analysis of the company’s latest statement of cashflows for the six months ending June 30, 2016.
Here’s a quick analysis of the company’s statement of cashflows for the six months ending June 30, 2016.
| All amounts in millions) | ||
| Net Income | 1,333 | |
| Operating Cashflow | 2,728 | |
| Investing Cashflow | -849 | |
| CF After Investing | 1,879 | |
| Dividends | -160 | |
| Other | 24 | |
| Total Other | 24 | |
| FX | ||
| Funding Surplus | 1,743 | |
| Debt Capital In/Out | ||
| Repayment of long-term debt | -103 | |
| Short term borrowings | ||
| Issuance of long-term debt | ||
| Net change in short-term debt | ||
| Principal payments under capital leases | ||
| Net Debt | -103 | |
| Equity Capital In/Out | ||
| Common stock repurchases | -1,200 | |
| Purchase of Treasury Stock | ||
| Issuance of Treasury Stock | ||
| Issuance of Common Stock | ||
| Proceeds from the exercise of stock options | 17 | |
| Net Equity Capital | -1,183 | |
| Cash Movement | 457 | |
| Bank Account Open | 1,583 | |
| Back Account Close | 2,040 |
Southwest had $$2.73 Billion in operating cashflows for the six month period ending June 30, 2016. When you subtract its entire investing cashflows of ($849 million), the company had cashflows after investing of $1.88 Billion.
With this excess it paid dividends of $160 Million and other financing costs of $24 Million. This left $1.74 Billion in funding surplus.
So what did it do with this funding surplus? Southwest paid down debt of $103 Million and repurchased $1.2 Billion worth of its own shares which still left $457 million to stick in the bank.
When you add this to the $1.58 Billion that the company already had in the bank, that leaves it with a total of $2.04 Billion for a rainy day.
But there’s more…
Southwest currently has $3.415 Billion in cash and cash equivalents, and with total debt of $3.354 Billion, that means the company could pay off its entire debt with its current cash and cash equivalents and still have $61 Million in the bank.
Valuation
Southwest currently has an Enterprise Value of $25.96 Billion, just under its current market cap of $26 Billion, and is selling at 5.6 times operating earnings, and a P/E of 11.3.
The company also has a nice little FCF/EV yield of 7% and a shareholder yield of 5% (Buyback Yield 4%, Dividend Yield 1%).
For me, there’s a lot to like about Southwest Airlines Co. (NYSE:LUV).
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