As of December 15, 2025, Southwest Airlines Co's estimated intrinsic value ranges from $10.34 to $72.00 per share, depending on the valuation methodology applied.
| Valuation Method | Fair Value (USD) | Implied Upside/Downside |
|---|---|---|
| Discounted Cash Flow (10Y) | $16.68 | -59.5% |
| Discounted Cash Flow (5Y) | $15.10 | -63.3% |
| Dividend Discount Model (Multi-Stage) | $22.59 | -45.1% |
| Dividend Discount Model (Stable) | $10.34 | -74.9% |
| Earnings Power Value | $72.00 | +74.9% |
Is Southwest Airlines Co (LUV) undervalued or overvalued?
With the current market price at $41.17, the stock appears to be significantly overvalued.
Intrinsic value represents the "true" worth of a company based on its fundamentals rather than market sentiment. We've employed multiple methodologies to triangulate Southwest Airlines Co's intrinsic value, including:
The cost of capital is a critical factor in valuation models, representing the required return for investors.
| WACC Component | Low | High |
|---|---|---|
| Long-term bond rate | 3.9% | 4.4% |
| Equity market risk premium | 4.6% | 5.6% |
| Adjusted beta | 1.09 | 1.21 |
| Cost of equity | 8.9% | 11.7% |
| Cost of debt | 4.0% | 9.1% |
| Tax rate | 26.1% | 26.4% |
| Debt/Equity ratio | 0.31 | 0.31 |
| After-tax WACC | 7.5% | 10.5% |
Our DCF model projects cash flows over 5-year and 10-year horizons, with the following key assumptions:
| DCF Model | Fair Value | Enterprise Value | % from Terminal Value |
|---|---|---|---|
| 5-Year Growth | $15 | $9,007M | 78.0% |
| 10-Year Growth | $17 | $9,825M | 61.1% |
| 5-Year EBITDA | $35 | $19,441M | 89.8% |
| 10-Year EBITDA | $33 | $18,409M | 79.2% |
The DDM values a company based on its expected future dividend payments. We used two approaches:
EPV assesses a company's value based on its current normalized earnings power, assuming no growth.
| EPV Component | Value |
|---|---|
| Normalized Earnings | $3,349M |
| Discount Rate (WACC) | 10.5% - 7.5% |
| Enterprise Value | $31,963M - $44,912M |
| Net Debt | $1,200M |
| Equity Value | $30,763M - $43,712M |
| Outstanding Shares | 517M |
| Fair Value | $59 - $85 |
| Selected Fair Value | $72.00 |
| Metric | Value |
|---|---|
| Market Capitalization | $21291M |
| Enterprise Value | $22491M |
| Trailing P/E | 56.18 |
| Forward P/E | 38.12 |
| Trailing EV/EBITDA | 6.65 |
| Current Dividend Yield | 186.93% |
| Dividend Growth Rate (5Y) | 22.98% |
| Debt-to-Equity Ratio | 0.31 |
To determine the most reliable intrinsic value estimate, we weigh each valuation method based on:
| Valuation Method | Weight | Weighted Value |
|---|---|---|
| Discounted Cash Flow (10Y) | 30% | $5.00 |
| Discounted Cash Flow (5Y) | 25% | $3.77 |
| Dividend Discount Model (Multi-Stage) | 20% | $4.52 |
| Dividend Discount Model (Stable) | 15% | $1.55 |
| Earnings Power Value | 10% | $7.20 |
| Weighted Average | 100% | $22.05 |
Based on our comprehensive valuation analysis, Southwest Airlines Co's intrinsic value is $22.05, which is approximately 46.5% below the current market price of $41.17.
Key investment considerations:
Given these factors, we believe Southwest Airlines Co is currently significantly overvalued with the potential for long-term appreciation based on the company's growth trajectory and financial strength.