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Shares of Southwest Airlines to continue growth

I remain upbeat about the shares of Southwest Airlines, a US based low-cost carrier. Last week, the company issued solid financials for the first quarter of 2016. Revenues increased 9.3% y-o-y to $4.826 bn and came in slightly ahead of consensus estimate of $4.818 bn. Airline traffic, measured in revenue passenger miles, grew 9.9% to 28.41 bn. Capacity or available seat miles rose 9.2%, while load factor (percentage of seats filled by passengers) climbed to 80.5% from 80.1% in the year-ago quarter. Meanwhile, passenger revenue per available seat mile (PRASM) fell 3.6% to 12.47 cents. Adjusted operating income jumped 23.6% to $952 mn, supported by lower fuel costs that dropped 11% to $1.78 per gallon, and operating margin expanded 230 basis points to 19.7%. Adjusted earnings per share surged 33.3% to 88 cents and surpassed analysts’ average projection of 84 cents.

At the end of first-quarter 2016, Southwest had $3.582 bn in cash and short-term investments and long-term debt of $2.355 bn. In Q1, the company generated free cash flow of $1.178 bn and returned $596 mn to shareholders through the combination of dividends and share repurchases.

According to Southwest’s management, solid bookings and revenue trends have continued, thus far, in April, and the company currently expect modest operating unit revenue growth in the second quarter of 2016, year-over-year. Southwest also expects Q2 fuel costs in the range of $1.75-1.80 per gallon compared $USD 2.02 per gallon in the year-ago quarter, which should continue to support margins.

Southwest’s shares are currently tradung above the $45 support lrvel as well as an upward ternd line. The stock, in my opinion, will continue to go up, with medium-term target at $52.