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1337Delta764
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Could United Boot Southwest From S&P 500?

Tue Sep 10, 2013 5:12 pm

With the recent news of Delta joining the S&P 500, I was thinking, looking at market caps for various U.S. airlines, presently United Continental Holdings (NYSE: UAL) has a higher market capitalization at $11.46B than Southwest Airlines at $9.7B. It is a bit surprising that United Continental Holdings wasn't added to the index. Perhaps they will be added in the next selection.

So, is there a chance of United possibly booting Southwest from the S&P 500?

[Edited 2013-09-10 10:14:16]
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catiii
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RE: Could United Boot Southwest From S&P 500?

Tue Sep 10, 2013 6:21 pm

There's 5 main criteria S&P uses when looking for Index candidates: trading analysis, liquidity, ownership, fundamental analysis, market capitalization, and sector representation. Since market cap is just one of the criteria, I don't think UA necessarily will boot out anyone based solely on that. In fact, given the sector representation criteria, my sense would be that Southwest would likely stay in because they provide a diverse alternative to DL.
 
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coronado
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RE: Could United Boot Southwest From S&P 500?

Tue Sep 10, 2013 6:49 pm

I don't think it is a question of booting LUV. LUV is still by far the strongest airline balance sheet wise due to the accumulation of profitable years. They pay a dividend.

I think if United Continental keeps improving, becomes more consistently profitable, perhaps starts recognizing a dividend, they should be able to get a spot on the S&P 500 replacing some other company that may get acquired, taken private and taken off the index.

There is no reason there could not be more than 2 airlines on the S&P 500, heck if more of them become ''investment grade'' even if just merely 'low investment grade' you could see 3 or 4 airlines on the index as long as they become sufficiently and consistently profitable over time for the market to award them a higher market capitalization, while still being a balanced component of the index.

I can envision in the next couple years some mergers among pharmaceutical companies which are a big component of the S&P 500, opening up slots for companies in other industries such as airlines, as long as they are sufficiently, consistentely profitable and able to maintain a high market cap.

I think in the case of United they will probably want to see some more progress on the merger and some sign that the promised synergies are really materializing. Let's face it the lack of unified work contracts throughout the employment base and the need to set up separate satellite bases in towns such as Denver to support sCO staff suggests that there is still work to be done.

One of the criteria by the S&P committee is profitability. UAL most current EPS (earnings per share) is a negative 1.90. whereas Deltas and Southwests EPS are significantly profitable.

[Edited 2013-09-10 12:07:49]
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sccutler
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RE: Could United Boot Southwest From S&P 500?

Tue Sep 10, 2013 8:26 pm

(Chuckle).

Remember, shortly after 9/11, when Southwest's market cap was greater than the rest of the US airlines - combined?
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RE: Could United Boot Southwest From S&P 500?

Tue Sep 10, 2013 10:17 pm

Quoting Coronado (Reply 2):
LUV is still by far the strongest airline balance sheet wise

Is it?

Quoting Coronado (Reply 2):
They pay a dividend.

So does ALK.

Quoting Coronado (Reply 2):
There is no reason there could not be more than 2 airlines on the S&P 500, heck if more of them become ''investment grade''

Ask LUV shareholders who are ticked at the dismal performance of the stock over the past 10 years if they still consider it "investment grade."
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