• Wondering if Southwest Airlines at around US$39.45 is priced for a smooth journey or some turbulence? This article walks you through what the current share price might be implying about value.
• The stock has pulled back 7.6% over the last week and is down 1.8% over the last month, even after a 51.9% return over the past year and a 39.1% return over three years. This can change how investors think about both opportunity and risk.
• Recent coverage has focused on Southwest Airlines as the broader airline sector continues to adjust capacity, pricing, and route networks, putting a spotlight on how each carrier is positioned. At the same time, ongoing discussions around costs, demand trends, and operational resilience have kept investor attention on whether recent share price moves line up with business fundamentals.
• Southwest Airlines currently has a valuation score of 3/6, with different methods giving different signals. The sections that follow will compare these valuation approaches and finish with a framework that can help you judge value more consistently over time.

Approach 1: Southwest Airlines Discounted Cash Flow (DCF) Analysis

A DCF model estimates what a business could be worth by projecting its future cash flows and then discounting those back into today’s dollars. It is essentially asking what the stream of future cash that shareholders might receive is worth right now.

For Southwest Airlines, the latest twelve month free cash flow is a loss of about $328.7 million. Analysts provide detailed free cash flow estimates out to 2028, and beyond that Simply Wall St extrapolates further, with projections reaching about $2.9 billion by 2030. All of these forecast cash flows are expressed in $, then discounted using a 2 Stage Free Cash Flow to Equity approach to reflect time and risk.

Pulling these projections together, the model suggests an intrinsic value of about $108.13 per share. Compared with the recent share price of around $39.45, the DCF output implies the stock is about 63.5% undervalued on this set of assumptions and inputs.

Result: UNDERVALUED

Our Discounted Cash Flow (DCF) analysis suggests Southwest Airlines is undervalued by 63.5%. Track this in your watchlist or portfolio, or discover 56 more high quality undervalued stocks.

Approach 2: Southwest Airlines Price vs Earnings

For profitable companies, the P/E ratio is a useful way to think about what you are paying for each dollar of current earnings. This helps tie the share price back to the business results you see in the income statement.

What counts as a “normal” or “fair” P/E depends on how much growth investors expect from those earnings and how much risk they see in achieving them. Higher expected growth or lower perceived risk can support a higher P/E, while lower growth or higher risk usually points to a lower P/E.

Southwest Airlines currently trades on a P/E of about 23.6x, compared with an Airlines industry average of about 8.2x and a peer group average of about 16.3x. Simply Wall St’s proprietary “Fair Ratio” for Southwest Airlines is about 24.0x, which estimates a suitable P/E based on factors such as its earnings growth profile, industry, profit margins, market cap and key risks.

This Fair Ratio can be more informative than a simple industry or peer comparison because it adjusts for company specific characteristics rather than treating all airlines as identical. With the current P/E of 23.6x sitting very close to the Fair Ratio of 24.0x, the valuation appears broadly aligned with these inputs.

Result: ABOUT RIGHT

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Upgrade Your Decision Making: Choose your Southwest Airlines Narrative

Earlier it was mentioned that there is an even better way to think about valuation, and on Simply Wall St that starts with Narratives, where you turn your view of Southwest Airlines into a simple story that links your assumptions for revenue, earnings and margins to a forecast, a fair value, and a clear comparison with today’s share price.

On the Community page, Narratives let you set out that story in a structured way, so you can see how your numbers translate into a fair value and then quickly compare that to the current market price to frame whether Southwest Airlines looks expensive or cheap on your assumptions, without needing to build a full model yourself.

Because Narratives on Simply Wall St update automatically when new company results, guidance or news arrive, you can keep the same core story and immediately see how fresh information affects the forecast and fair value rather than starting from scratch each time.

For Southwest Airlines, for example, one investor might align with a more cautious Narrative built around a Fair Value of about US$24.00 that leans on slower revenue growth and tighter margins. Another might choose a more optimistic Narrative closer to US$60.00 that assumes stronger revenue expansion, higher profitability and a higher future P/E. Comparing these side by side helps you decide which story feels more realistic for your own decision making.

For Southwest Airlines, here are previews of two leading Southwest Airlines Narratives:

Fair value in this narrative: US$44.82 per share

Implied pricing gap vs last close around US$39.45: about 12.0% undervalued based on these assumptions

Analyst modeled revenue growth: about 7.24% per year

• Analysts in this scenario see new distribution channels, premium and basic economy seating, and loyalty program changes as key drivers for revenue and margin expansion.
• The narrative leans on cost controls, shorter aircraft turn times, and efficiency gains to support higher earnings and a future P/E of about 9.5x by 2029.
• Risks focus on fuel costs, aircraft delivery timing, competition at key airports, and how customers react to new fees and product changes.

Fair value in this narrative: US$24.00 per share

Implied pricing gap vs last close around US$39.45: about 39.1% overvalued based on these assumptions

Analyst modeled revenue growth: about 4.07% per year

• This scenario puts more weight on headwinds such as higher fuel and labor costs, carbon related expenses, and the reliance on a single aircraft family.
• Bearish analysts in this view expect more modest revenue growth, thinner future margins, and a lower future P/E of about 7.2x by 2029.
• The narrative still acknowledges potential upside from product upgrades and new fees, but assumes execution risks and cost pressures keep fair value closer to the low end of the current analyst target range.

These two Narratives frame the current debate around Southwest Airlines in clear numbers, so you can decide which assumptions feel closer to your own expectations before you act.

Do you think there's more to the story for Southwest Airlines? Head over to our Community to see what others are saying!

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.