Is Southwest Airlines Stock Attractive After Its Earnings Rebound?

LUV’s Earnings Beat Strengthens the Bull Case

Southwest Airlines reported second-quarter 2026 adjusted earnings of 94 cents per share, up 118.6% year over year. The result was 80.8% above the Zacks Consensus Estimate of 52 cents.

The earnings beat came despite a revenue miss. Operating revenues of $8.43 billion rose 16.4% but missed the consensus mark by 1.7%, showing that cost control and stronger unit economics were central to the quarter’s upside.

Southwest Airlines Restores Margin Momentum

Adjusted operating income climbed 138.8% to $585 million. Adjusted operating margin expanded 3.3 percentage points to 6.7%, despite an $889 million year-over-year increase in fuel expense.

The improvement was not driven by broad volume growth. Capacity increased only 0.2%, while adjusted revenue per available seat mile jumped 20.1%, helped by higher fares, disciplined capacity, assigned and extra-legroom seating, bag fees and better revenue management.

LUV’s Valuation Sends Mixed Signals

LUV trades at 0.66X forward 12-month price-to-sales. That is above 0.53X for the Zacks airline sub-industry but below Southwest Airlines' five-year median of 0.88X.

That creates a split valuation picture. The stock may look inexpensive against its own history, but it does not offer a clear discount to direct industry benchmarks. Delta Air Lines DAL and American Airlines Group AAL remain relevant peers for investors comparing airline demand, pricing and cost exposure; Delta Air Lines operates a global network serving more than 290 destinations, while American Airlines' investor relations site provides financial information for stockholders and analysts.

Southwest Airlines Has Moderate Target Upside

Southwest Airlines' $55 price target compares with a reported share price of $46.31. The target still implies upside, but the stock has already gained 12.1% year to date and 50.8% over the trailing 12 months.

After that move, execution matters more. Further appreciation likely depends on whether Southwest Airlines can sustain unit-revenue gains while managing fuel, retrofit costs and fleet-delivery risk.

LUV’s Liquidity Supports the Turnaround

Southwest Airlines ended the second quarter with $5.3 billion of liquidity, including $3.8 billion in cash and cash equivalents. Gross leverage was 2.1 times, and first-half operating cash flow reached nearly $2 billion.

Capital allocation also supports flexibility. The company paid $181 million in dividends in the first half of 2026 and repurchased $1.25 billion of common stock in the first quarter, while management expects 2026 net capital spending near the low end of, or below, the prior $3.0-$3.5 billion range.

Southwest Airlines’ Rating Case Needs Confirmation

The bottom line: Southwest Airlines has improved its earnings profile, but investors still need confirmation that the rebound can withstand fuel volatility, higher nonfuel costs and Boeing-related execution challenges.

The stock currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here. Its Value Score of A, Growth Score of A, Momentum Score of B and VGM Score of A indicate favorable estimate and style characteristics, but the remaining risk factors argue for selectivity rather than an unconditional chase after the rally.

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This article originally published on Zacks Investment Research (zacks.com).

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