The airline anticipates slower cash burn as bookings continue to improve
The shares of Southwest Airlines Co (NYSE: LUV) are up 0.5% to trade at $51.58 this morning, after the company said it is experiencing improved leisure passenger demand and bookings for February. The airline added it expects to see better year-over-year operating revenues, noting that cash burn should slow down as bookings improve. Now, the firm anticipates core cash burn to be roughly $15 million a day for the first quarter, as opposed to $17 million a day.
Digging deeper, the equity has been taking a breather from its Feb. 8, annual high of $53.28. Smaller-than-expected fourth-quarter losses certainly helped the security to that level, which is more than double its May 14, seven-year low of $22.47. Meanwhile, support at the 80-day moving average contained the stock's latest pullback. In the last nine months, LUV has added 86.5%.
Analysts are already optimistic towards the equity, with 14 of the 16 in coverage sporting a "buy" or better rating. Plus, the 12-month consensus target price of $56.32 is a healthy 9.1% premium to current levels.
The options pits reflect that upbeat sentiment, with calls popular. This is per LUV's 50-day call/put volume ratio of 4.11 at the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), which sits higher than 87% of readings from the past year. This means calls are being picked up at a faster-than-usual clip.
Lastly, LUV options can be had for a bargain at the moment. The stock's Schaeffer's Volatility Index (SVI) of 42% stands higher than 12% of all other readings in its annual range, suggesting options players are pricing in relatively low volatility expectations right now.