Southwest Airlines' Earnings Potential Significantly Enhanced
Written by Emily J. Thompson, Senior Investment Analyst
Updated: 1 day ago
0mins
Should l Buy LUV?
Source: seekingalpha
- Earnings Outlook Upgrade: UBS analyst Atul Maheswari projects that Southwest Airlines (LUV) could see its earnings per share (EPS) rise to $4.25 to $4.50 by FY27 through initiatives like assigned seating and checked bag charges, indicating strong growth potential.
- Seat Charge Revenue: With 28% of seats offering extra legroom and 22% preferred seating, Southwest is expected to generate $1.7 billion in additional EBIT by FY27 from seat charges, translating to approximately $2.70 per share.
- Bag Fee Potential: Assuming 15% to 25% of passengers check bags at $35 each, Southwest could achieve an additional $1 billion to $1.5 billion in EBIT, further boosting EPS to between $1.25 and $2.15, highlighting the significant revenue opportunity from bag fees.
- Positive Market Reaction: UBS upgraded Southwest's rating from Neutral to Buy with a price target increase to $73, contributing to a 6% rise in its stock price and positively impacting competitors in the airline sector.
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Analyst Views on LUV
Wall Street analysts forecast LUV stock price to fall
14 Analyst Rating
4 Buy
9 Hold
1 Sell
Hold
Current: 54.260
Low
34.00
Averages
44.21
High
60.00
Current: 54.260
Low
34.00
Averages
44.21
High
60.00
About LUV
Southwest Airlines Co. (Southwest) operates Southwest Airlines, a passenger airline that provides scheduled air transportation in the United States and near-international markets. The Company's fare products include four categories: Wanna Get Away, Wanna Get Away Plus, Anytime, and Business Select to provide customers options when choosing a fare. It also offers ancillary services, such as EarlyBird Check-In, Upgraded Boarding, and transportation of pets and unaccompanied minors, in accordance with Southwest’s respective policies. Its Rapid Rewards loyalty program enables program members to earn points for every dollar spent on Southwest base fares, also including purchases paid with LUV Vouchers, gift cards, or flight credit, with no portion of the purchase price paid with Rapid Rewards points. It operates over 803 Boeing 737 aircraft in its fleet and serves 117 destinations in 42 states, the District of Columbia, the Commonwealth of Puerto Rico, and ten near-international countries.
About the author
Emily J. Thompson
Emily J. Thompson, a Chartered Financial Analyst (CFA) with 12 years in investment research, graduated with honors from the Wharton School. Specializing in industrial and technology stocks, she provides in-depth analysis for Intellectia’s earnings and market brief reports.
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- Stock Resilience: Despite declines in Nasdaq and S&P 500 indices, Southwest Airlines shares rose 2.25% to $52.26 in premarket trading on Tuesday, indicating strong performance against broader market trends.
- Significant Annual Gain: Over the past 12 months, Southwest Airlines has achieved a remarkable 70.37% increase in stock price, currently nearing its 52-week high of $54.70, reflecting robust long-term growth momentum.
- Optimistic Earnings Outlook: Analysts anticipate that the upcoming earnings report on April 22 will show an EPS of 52 cents, a significant recovery from a loss of 13 cents YoY, with revenue expected to reach $7.16 billion, up from $6.43 billion last year.
- Analyst Ratings and Price Targets: The stock holds an average price target of $42.44 with a Hold rating, while recent analyst upgrades include Susquehanna raising its target to $55.00, indicating confidence in the company's future performance.
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- Revenue Growth Strategy: Southwest is shifting away from its traditional model by implementing bag fees, assigned seating, and extending flight credit expiration dates, which are expected to mature by fiscal 2027 and contribute an incremental earnings per share of $4.25 to $4.50.
- Analyst Consensus: According to Koyfin, the average analyst rating for Southwest Airlines is Buy, with 10 out of 25 analysts rating it Buy or higher, indicating a generally optimistic outlook for the company's future performance.
- Retail Investor Sentiment: Retail sentiment on Southwest Airlines shifted from bearish to bullish over the past month, with message volumes on Stocktwits surging 220% in the last 24 hours, reflecting increased investor confidence and contributing to a 79% rise in stock price over the past year.
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- Apple Product Launch Boost: Apple shares surged over 3% after announcing a product launch on March 4, with several new devices expected in the coming weeks, which not only boosted Apple's market performance but also generated positive sentiment across the tech sector.
- Airline Stocks Rally: Airline stocks showed strong performance on Tuesday, led by a 6% increase in Southwest Airlines after UBS upgraded its rating from neutral to buy with a price target of $73, which not only enhanced the overall performance of airline stocks but also contributed to a more optimistic market outlook.
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- Market Reaction: As consumer confidence wanes, doubts about the profitability of consumer goods companies have intensified selling pressure on related stocks, potentially impacting their short-term price performance.
- Industry Impact: The weakness in the consumer goods sector may affect overall market sentiment, especially in a slowing economy, prompting more investors to shift towards defensive assets to mitigate risks.
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- Nasdaq Underperformance: While broader equity indices were largely flat, the tech-heavy Nasdaq 100 slipped 0.3%, indicating a lack of confidence in the tech sector that may influence future investment decisions.
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- Stock Resilience: Despite declines in Nasdaq and S&P 500 indices, Southwest Airlines shares rose 2.25% to $52.26 in premarket trading on Tuesday, indicating strong performance against broader market trends.
- Significant Annual Gain: Over the past 12 months, Southwest Airlines has achieved a remarkable 70.37% increase in stock price, currently nearing its 52-week high of $54.70, reflecting robust long-term growth momentum.
- Optimistic Earnings Outlook: Analysts anticipate that the upcoming earnings report on April 22 will show an EPS of 52 cents, a significant recovery from a loss of 13 cents YoY, with revenue expected to reach $7.16 billion, up from $6.43 billion last year.
- Analyst Ratings and Price Targets: The stock holds an average price target of $42.44 with a Hold rating, while recent analyst upgrades include Susquehanna raising its target to $55.00, indicating confidence in the company's future performance.
See More
UBS Upgrades Southwest Airlines to Buy with $73 Price Target
- Rating Upgrade: UBS upgraded Southwest Airlines from Neutral to Buy and raised its price target from $51 to $73, indicating approximately 35% upside from the latest closing price of $54.26, reflecting strong confidence in the company's growth prospects.
- Revenue Growth Strategy: Southwest is shifting away from its traditional model by implementing bag fees, assigned seating, and extending flight credit expiration dates, which are expected to mature by fiscal 2027 and contribute an incremental earnings per share of $4.25 to $4.50.
- Analyst Consensus: According to Koyfin, the average analyst rating for Southwest Airlines is Buy, with 10 out of 25 analysts rating it Buy or higher, indicating a generally optimistic outlook for the company's future performance.
- Retail Investor Sentiment: Retail sentiment on Southwest Airlines shifted from bearish to bullish over the past month, with message volumes on Stocktwits surging 220% in the last 24 hours, reflecting increased investor confidence and contributing to a 79% rise in stock price over the past year.
See More
U.S. Stocks Close Mixed, Apple Shares Rise on Product Launch News
- Market Performance Fluctuates: On Tuesday, the S&P 500 rose by 0.10%, the Dow Jones increased by 0.07%, while the Nasdaq 100 fell by 0.13%, indicating a mixed market recovery from early losses, with the Nasdaq 100 hitting a 2.75-month low, reflecting investor caution towards tech stocks.
- Apple Product Launch Boost: Apple shares surged over 3% after announcing a product launch on March 4, with several new devices expected in the coming weeks, which not only boosted Apple's market performance but also generated positive sentiment across the tech sector.
- Airline Stocks Rally: Airline stocks showed strong performance on Tuesday, led by a 6% increase in Southwest Airlines after UBS upgraded its rating from neutral to buy with a price target of $73, which not only enhanced the overall performance of airline stocks but also contributed to a more optimistic market outlook.
- Mixed Economic Data: The U.S. February NAHB housing market index unexpectedly fell to a 5-month low of 36, below the expected 38, while the February Empire manufacturing survey slightly declined to 7.1, indicating uncertainty in economic recovery, as the market remains focused on upcoming corporate earnings and economic news.
See More
Consumer Stocks Decline Late Tuesday Afternoon
- Consumer Stock Decline: Consumer stocks were broadly lower late Tuesday afternoon, reflecting market concerns over economic outlook amid rising inflation and interest rates, leading to a cautious investor sentiment.
- Market Reaction: As consumer confidence wanes, doubts about the profitability of consumer goods companies have intensified selling pressure on related stocks, potentially impacting their short-term price performance.
- Industry Impact: The weakness in the consumer goods sector may affect overall market sentiment, especially in a slowing economy, prompting more investors to shift towards defensive assets to mitigate risks.
- Future Outlook: If consumer stocks continue to underperform, it may lead investors to reassess their portfolios, particularly with the upcoming earnings season where corporate profitability will be a key focus.
See More
Wall Street Opens Under AI Disruption Fears
- Tech Stocks Decline: The iShares Expanded Tech-Software Sector ETF (NYSE:IGV) fell over 2.7% in midday New York trading, marking its 11th decline in the past 15 sessions and pushing year-to-date losses to nearly 25%, reflecting ongoing investor concerns over potential AI-driven market disruptions.
- Nasdaq Underperformance: While broader equity indices were largely flat, the tech-heavy Nasdaq 100 slipped 0.3%, indicating a lack of confidence in the tech sector that may influence future investment decisions.
- Airline Stocks Rally: Airbnb Inc. (NASDAQ:ABNB) added 3.7%, extending last week's post-earnings momentum, while Southwest Airlines Co. (NYSE:LUV) jumped over 6% following analyst upgrades, suggesting a positive outlook for the airline industry's recovery.
- Commodity Market Decline: Following Iran's foreign minister's statement on reaching key principles with the U.S., crude oil fell 1.3% to $62 per barrel, while gold and silver dropped 2.5% and nearly 6%, respectively, indicating market reactions to geopolitical risks.
See More
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- General Mills Outlook Downgrade: General Mills has lowered its 2026 organic net sales forecast to a decline of 1.5% to 2%, with operating profit and adjusted EPS expected to fall by 16% to 20%, resulting in a 7% drop in shares, indicating market concerns about future growth.
- Southwest Airlines Stock Surge: Shares of Southwest Airlines rose over 6% after UBS upgraded its rating to buy, with analysts highlighting new initiatives like extra legroom and assigned seating that could attract more travelers, showcasing the company's proactive transformation in a competitive airline market.
- ZIM Integrated Shipping Services Surge: ZIM's shares surged 30% following the announcement that German-based Hapag-Lloyd will acquire ZIM for $4.2 billion, financed through cash and external funding, marking a significant consolidation in the shipping industry.
- Labcorp's Mixed Results: Labcorp reported a fourth-quarter EPS of $4.07, exceeding the $3.94 expected by analysts, yet shares fell over 3% due to concerns regarding the pace of organic revenue growth despite a positive earnings forecast.
See More
