SOUTHWEST AIRLINES CO

Where It Passes

Where It Falls Short

• Valuation0% pass✓ 2✗ 26▾

  No clean pass — all 13 investors flag at least one valuation criterion

  Net income / market capitalization+4.79%; #1751/6340 (top 27.6%)

  ✓AsnessTop 30% of eligible cross-section✗OshaughnessyTop 10% of eligible cross-section

  Price / 3-yr avg EPS58.4x

  ✗Graham<= 15x

  Price-to-Book Ratio2.9x

  ✗Graham<= 1.5x

  P/E x P/B169.40

  ✗Graham<= 22.5

  Basic earnings-growth PEG (dividends excluded)P/E 56.9x (growth N/A)

  ✗Lynch< 1.0 (ideally < 0.5)

  EBIT / Enterprise Value1.8%

  ✗Greenblatt> 10%

  Earnings Yield + ROC AssessmentEY=1.8%, ROC=3.6%

  ✗GreenblattBoth EY > 10% and ROC > 25%

  Price / EPS56.9x

  ✗Dreman< 12x✗Templeton< 12x (fixed ceiling; proxy for the market's cheapest 40%)

  Price / (CFO / Shares)12.6x

  ✗Dreman< 8x

  Price / Book Value per Share2.9x

  ✗Dreman< 1.2x✗Templeton< 1.5x✗SchlossP/B <= 0.80x (app cutoff)

  Valuation ReasonablenessP/E=56.9x, OE Yield=-2.9%

  ✗MungerP/E < 25 or Owner Earnings Yield > 5%

  P/E or FCF YieldP/E=56.9x, FCF Yield=-3.8%

  ✗PabraiP/E < 15 or FCF Yield > 10%

  P/B or P/E vs. Historical AverageP/E=56.9x, P/B=2.9x

  ✗MarksP/E < 15 or P/B < 2.0

  Discount to Intrinsic Value-289.1% (IV=$11.55 vs Price=$44.94)

  ✗Marks>= 20% below intrinsic value

  Price / FCF per ShareN/A (negative FCF)

  ✗Ackman<= 25

  Price vs. Trailing Low161% of trailing low ($27.96)

  ✗Templeton<= 120% of trailing low (certified split-adjusted live window)

  Positive book equity / market capitalization+0.3331; #3542/6449 (top 54.9%)

  ✗AsnessTop 30% of eligible cross-section

  Price / Diluted EPS56.9x

  ✗NeffP/E <= 15x (app proxy for a P/E 40%-60% below the market)

  (EPS CAGR % + Dividend Yield %) / P/E-0.26

  ✗Neff> 0.7 (Neff's published traditional edge)

  Price / Tangible Book Value per Share3.45x

  ✗SchlossP/TBV <= 1.00x (app cutoff)

  Book Value per Share Change+3.0%

  ✓SchlossLatest BVPS >= earliest BVPS over >= 3 years (app rule)

  Revenue / market capitalization+1.4337; #1390/5247 (top 26.5%)

  ✗OshaughnessyTop 10% of eligible cross-section

  (Operating cash flow - capex) / market capitalization-2.53%; #2799/4519 (top 61.9%)

  ✗OshaughnessyTop 10% of eligible cross-section

  Trailing six-month price return through the evaluation date+13.60%; #1665/6202 (top 26.8%)

  ✗OshaughnessyTop 10% of eligible cross-section
• Efficiency0% pass✓ 1✗ 10▾

  No clean pass — all 8 investors flag at least one efficiency criterion

  Current Ratio0.47

  ✗Graham>= 2.0

  ROIC (3-5 yr avg)6.5%

  ✗Buffett> 10%

  ROIC - WACC-3.5%

  ✗BuffettPositive (WACC = 10%)

  EBIT / (NWC + Net Fixed Assets)3.6%

  ✗Greenblatt> 25%

  Current Ratio Change YoY0.92 -> 0.52

  ✗PiotroskiIncreased YoY

  Revenue / Total Assets Change YoY0.81x -> 0.97x

  ✓PiotroskiImproved YoY

  Current Assets / Current Liabilities0.47

  ✗Dreman> 1.5

  Return on Invested Capital8.3%

  ✗Munger> 15%

  ROIC (high and growing)FY2023: ROIC=1.0%; FY2024: ROIC=1.5%; FY2025: ROIC=2.6%

  ✗AkreLatest 3 consecutive FYs: ROIC > 15% in each

  Reinvestment Rate x ROIC5.5% (RR=66% x ROIC=8.3%)

  ✗AkreReinvestment Rate * ROIC > 10%

  ROIC (5-year)0/5 years above 12% (latest 2.6%)

  ✗SleepROIC > 12% in a majority of years
• Valuation models0% pass✗ 7▾

  LUV overvalued: all 7 models price fair value below $44.94 (median $14.37)

  Graham fair value$16.59

  ✗Graham-170.9% margin vs $44.94

  Greenblatt fair value$4.97

  ✗Greenblatt-804.2% margin vs $44.94

  Dreman fair value$11.55

  ✗Dreman-289.1% margin vs $44.94

  Pabrai fair value$6.49

  ✗Pabrai-592.4% margin vs $44.94

  Akre fair value$18.53

  ✗Akre-142.5% margin vs $44.94

  Marks fair value$25.39

  ✗Marks-77.0% margin vs $44.94

  Templeton fair value$14.37

  ✗Templeton-212.7% margin vs $44.94
• Profitability13% pass✓ 11✗ 24▾

  14 of 16 flag LUV's profitability — Graham, Buffett, Lynch +11 more

  Net income / market capitalization+4.79%; #1751/6340 (top 27.6%)

  ✓AsnessTop 30% of eligible cross-section✗OshaughnessyTop 10% of eligible cross-section

  Positive EPS (10 years)26/27 years positive

  ✗GrahamPositive EPS every year for 10 years

  EPS Growth (3-yr avg, 10-yr window)

  ✗Graham>= 33% growth

  Net Income Positive (10+ years)26/27 years positive

  ✗BuffettPositive every year for 10+ years

  ROE (up to 5-year arithmetic mean)5.8%

  ✗Buffett> 15% arithmetic mean (app rule)

  Operating Margin (10-yr trend)1.5% (latest)

  ✗BuffettStable or rising over 10 years

  Free Cash Flow Proxy$-253.6M

  ✗BuffettPositive and growing

  Earnings Variance (10-yr CoV)

  ✗BuffettCoV < 0.3

  Retained Earnings Effectiveness

  ✗Buffett$1 retained -> > $1 market value created

  Basic earnings-growth PEG (dividends excluded)P/E 56.9x (growth N/A)

  ✗Lynch< 1.0 (ideally < 0.5)

  3-5 Year EPS CAGR-16.3%

  ✗Lynch15-30% (Fast Grower); > 0% to pass

  ROE14.4%

  ✗Lynch> 15%

  EBIT / Enterprise Value1.8%

  ✗Greenblatt> 10%

  Earnings Yield + ROC AssessmentEY=1.8%, ROC=3.6%

  ✗GreenblattBoth EY > 10% and ROC > 25%

  Net Income / Total Assets1.52%

  ✓PiotroskiROA > 0

  ROA Change YoY1.38% -> 1.52% (delta: +0.14%)

  ✓PiotroskiCurrent ROA > Prior ROA

  (CFO / Total Assets) vs ROACFO/Assets=6.34%, ROA=1.52%

  ✓PiotroskiCFO/Assets > ROA

  Gross Margin Change YoY

  ✗PiotroskiImproved YoY

  Pre-Tax Income / Revenue4.3%

  ✗Dreman>= 8%

  Net Income / Shareholders' Equity14.4%

  ✓Dreman> 12%

  Margin of SafetyP/E=56.9x, P/B=2.9x

  ✗PabraiP/B < 1.5 or P/E < 15

  Return on Equity4.8% (3-yr avg)

  ✗AkreROE > 20% (3-year avg)

  Discount to Intrinsic Value-289.1% (IV=$11.55 vs Price=$44.94)

  ✗Marks>= 20% below intrinsic value

  Positive Net Income Frequency26/27 years positive

  ✓MarksPositive net income in >= 7 of last 10 years

  Operating Income / Revenue4.4%

  ✗Ackman>= 15%

  Net Income / Shareholders Equity14.4%

  ✗Ackman>= 15%

  5-Year EPS CAGR-16.3% CAGR over 4 years

  ✗Templeton> 0% (5-year EPS CAGR)

  Operating Margin Trend0.9% (2023) -> 1.5% (2025)

  ✓TempletonNon-negative operating-margin trend over 3 years

  Revenue growth vs. gross and operating margin trendrevenue up, operating margin 0.9% -> 1.5%

  ✓SleepRevenue rising; gross margin flat or falling; operating margin holding

  Gross profit / total assets

  ✗AsnessTop 30% of eligible cross-section

  Net income / positive book equity+14.37%; #1226/5226 (top 23.5%)

  ✓AsnessTop 30% of eligible cross-section

  Negative 5-year standard deviation of ROA-0.0052; #495/5884 (top 8.4%)

  ✓AsnessTop 30% of eligible cross-section

  3-5 Year Diluted EPS CAGR-16.3% over 4 years

  ✗Neff7%-20% annualized

  Positive Diluted-EPS Years9/10 years positive

  ✓Schloss>= 70% positive over 5-10 observed years (app rule)
• Verdicts15% pass✓ 2✗ 11▾

  Split decision: 10 FAIL · 4 NEUTRAL · 1 PASS · 1 BUY

  Overall verdict

  ✗GrahamFAIL (2/9)✗BuffettFAIL (0/9)✗LynchFAIL (1/7)✗GreenblattRank #1735•PiotroskiNEUTRAL (F-Score 7)✗DremanFAIL (2/11)✗MungerFAIL (1/4)✗PabraiFAIL (0/3)✗AkreFAIL (0/6)✗MarksFAIL (3/5)✓AckmanPASS (4/9)✗TempletonFAIL (3/8)•SleepNEUTRAL (4/6)•AsnessNEUTRAL (Not ranked)✗NeffFAIL (2/6)•SchlossNEUTRAL (4/7)✓OshaughnessyBUY (Rank #66/963 (Top 6.9%))
• Growth25% pass✓ 5✗ 8▾

  6 of 8 flag LUV's growth — Graham, Lynch, Dreman +3 more

  EPS Growth (3-yr avg, 10-yr window)

  ✗Graham>= 33% growth

  Basic earnings-growth PEG (dividends excluded)P/E 56.9x (growth N/A)

  ✗Lynch< 1.0 (ideally < 0.5)

  3-5 Year EPS CAGR-16.3%

  ✗Lynch15-30% (Fast Grower); > 0% to pass

  Inventory Growth vs Revenue GrowthN/A (no inventory)

  ✓LynchInventory growth < Revenue growth

  EPS Growth Direction

  ✗DremanPositive over recent years

  EPS CAGR

  ✗Dreman> 5% annualized

  Positive Net Income Frequency26/27 years positive

  ✓MarksPositive net income in >= 7 of last 10 years

  3yr Median Revenue Growth5.3%

  ✓Ackman>= 5%

  Positive EPS Growth Frequency2/5 years with positive EPS growth

  ✗AckmanPositive EPS growth in >= 3 of last 5 years

  5-Year EPS CAGR-16.3% CAGR over 4 years

  ✗Templeton> 0% (5-year EPS CAGR)

  Revenue growth vs. gross and operating margin trendrevenue up, operating margin 0.9% -> 1.5%

  ✓SleepRevenue rising; gross margin flat or falling; operating margin holding

  5-year Revenue CAGR25.4%

  ✓SleepCAGR > 7%

  3-5 Year Diluted EPS CAGR-16.3% over 4 years

  ✗Neff7%-20% annualized
• Cash Flow30% pass✓ 4✗ 8▾

  7 of 10 flag LUV's cash flow — Buffett, Lynch, Dreman +4 more

  Free Cash Flow Proxy$-253.6M

  ✗BuffettPositive and growing

  FCF Positive and Growing$-557.0M

  ✗LynchPositive and growing

  Operating Cash Flow$1.8B

  ✓PiotroskiCFO > 0

  (CFO / Total Assets) vs ROACFO/Assets=6.34%, ROA=1.52%

  ✓PiotroskiCFO/Assets > ROA

  Price / (CFO / Shares)12.6x

  ✗Dreman< 8x

  P/E or FCF YieldP/E=56.9x, FCF Yield=-3.8%

  ✗PabraiP/E < 15 or FCF Yield > 10%

  FCF Positive12/18 years FCF positive

  ✓MarksPositive FCF in majority of recent years

  (OCF - CapEx) / Market Cap-2.4%

  ✗Ackman>= 4%

  Price / FCF per ShareN/A (negative FCF)

  ✗Ackman<= 25

  Positive Operating Cash Flow frequency23/25 years positive

  ✓SleepPositive OCF in >= 70% of available years

  Operating Cash Flow - Capital Expenditures$-557.0M

  ✗Neff> $0 (app proxy for a strong fundamental case)

  (Operating cash flow - capex) / market capitalization-2.53%; #2799/4519 (top 61.9%)

  ✗OshaughnessyTop 10% of eligible cross-section
• Debt & Leverage33% pass✓ 5✗ 10▾

  8 of 12 flag LUV's debt & leverage — Graham, Buffett, Lynch +5 more

  Total Debt / Shareholders' Equity0.80

  ✗Dreman< 0.8✓Templeton< 1.0 (fixed cap; proxy for below-sector-median leverage)✓SchlossD/E < 1.00x

  LT Debt vs Net Current AssetsLT Debt $4.9B vs NCA $-5.3B

  ✗GrahamLT Debt <= Net Current Assets

  Debt/Equity & Interest CoverageD/E: 0.80, IC: 5.9x

  ✗BuffettD/E < 0.5 AND Interest Coverage > 5x

  Total Debt / Equity0.80

  ✗Lynch< 0.33

  Cash - Long-term Debt$-1.7B

  ✗LynchPositive preferred

  LT Debt / Total Assets Change19.84% -> 16.96%

  ✓PiotroskiDecreased YoY

  Current Assets / Current Liabilities0.47

  ✗Dreman> 1.5✗SchlossCurrent ratio >= 1.50x (app cutoff)

  Debt Levels0.80

  ✗MungerDebt/Equity < 0.5✗AkreDebt/Equity < 0.3

  Interest Coverage & Debt/EBITDAIC=5.9x, D/EBITDA=2.0x

  ✓MarksInterest Coverage > 3x; Debt/EBITDA < 4x

  Total Debt / Shareholders Equity0.80

  ✓Ackman<= 1.0

  Negative debt-to-equity (higher means less debt)-0.8032; #3002/4210 (top 71.3%)

  ✗AsnessTop 30% of eligible cross-section