e accident with the plane in the late March, 2000, did not affect the stock price much, since the stability and strength is well trusted. It is hard to evaluate the stock based on the Gordon's Growth Model since the company is decreasing its dividend pay-out and does that in a constant manner. Free Cash Flow to Equity (FCFE) model was applied to the case. It did not yield satisfactory results, due to the fact that the large portion of the fleet is already taken of the books, and the left portion yields stock price which doesn't reflect the current state of nature.The stock is covered by Goldman Sachs and Co., Merrill Lynch and Co., Morgan Stanley Dean Witter and Co., Paine Webber Inc., and Salomon Smith Barney Inc. For the last five month nine of the sixteen analysts have suggested a strong buy.Financial ConclusionSouthwest Airlines is in a very strong position and all its activities suggest that it will stay in this state for the time to come. It has several issues, that management would probably want to address:Net Revenue growth - the expansion of the fleet and addition of the destinations addresses it. Changes in financial statements can be assessed by the time company issues its financial data for the years 2000 and 2001.Current and Long Term liabilities are pressuring company's ratios. Once the expansion completed and the debt shifted from current to long term, ratios will look in the favor of the company.Return on equity is below its main competitor, Skywest Airlines, due to the comparatively low asset turnover and profit margin.FLYING INTO THE FUTUREAlthough the airline has scaled back its market expansion plans, Southwest thinks it can expend capacity about 15 to 20percent annually. However, in fiercely competitive world of low-fare service, Southwest differentiates itself by the way it plans the future. Herb Kelleher, the CEO, said, "Southwest does not prepare strategic plans in the traditional sense. We do not even do ...
