Stock pick: Southwest Airlines Co. (LUV) looking abroad for growth

LUV is in the air

Trailing 12-month stock chart for Southwest Airlines

Anyone who has paid any attention to the stock market over the last year will have noticed Air Canada’s dramatic rise. Over the last 12 months its stock is up about 135%. If you’re thinking that maybe the company’s equity has had a bit too good of a run, but still want to own an airline, here’s an alternative: Southwest Airlines Co. (NYSE: LUV).

The popular Dallas-based company has also done well over the last year—it’s up 84%—but analysts think it still has room to grow. Part of the reason for the optimism is increasing traffic load.

In March, the company flew 9.6 billion revenue passenger miles—the amount of miles each paying passenger has flown—and that’s up 1.6% over the same period last year. Load factor—the percentage of a plane filled with paying passengers—was also up to 82.7% from 82% a year earlier.

While other metrics, such as trips flown and passengers carried were down, overall the numbers have looked good this year, writes Helane Becker, an analyst with Cowen and Company, in a March report.

Airline demand is picking up as the economy improves—traffic tends to grow in line or a little faster than gross domestic product—but Southwest could exceed overall growth with some new route offerings. In October the Wright Amendment, a piece of legislation that limited the number of planes allowed to fly out of Dallas’ Love Field, will be repealed and that will be a boon to the airline. It’s said it will add 15 new non-stop routes in October.

It’s also going to start flying internationally this year. It’ll only go to to Mexico and the Caribbean at first, but Becker thinks it will expand to other non-U.S. destinations in the future. “That will likely lead to a larger build-out when their international gateways open,” she writes.

In her most recent report, Becker increased her earnings per share forecast from $0.14 to $0.17. For all of 2014, her estimate is now $1.40 up from $1.30. The stock is currently trading at $24 a share, but Becker thinks it will $26 over the next 12 months. Other analysts have it rising as high as $32 a share.