Per Figure 2, LUV’s current ROIC of 12% ranks well above each of the other largest U.S. airlines. LUV’s current economic book value, or no-growth value, after accounting for its dilutive financing activities, is $47/share – a 62% upside to the current price. Figure 4: LUV’s Stock Price vs. Economic Book Value (EBV)LUV Stock Price Vs. EBV New Constructs, LLCLUV’s Current Price Implies No Economic RecoveryBelow, I use my reverse DCF model to quantify the cash flow expectations baked into LUV’s current stock price. For reference, LUV’s NOPAT declined by 53% compounded annually from 2000 to 2002 before growing by 14% compounded annually over the next decade (2003-2013). Clearly investors aren’t willing to bet on the downturn implied by LUV’s current stock price and expect the firm to survive the crisis.

Source: Forbes May 26, 2020 13:30 UTC