On Wednesday, Bernstein, a research firm, updated its outlook on Southwest Airlines Co (NYSE:LUV), increasing the stock's price target from $30.00 to $33.00. The firm maintained its Market Perform rating on the airline, indicating a neutral stance towards the stock's future performance. According to InvestingPro data, the stock is currently trading near its Fair Value, with analysts' targets ranging from $23.12 to $40.00.
The adjustment comes amidst Southwest's ongoing efforts to enhance its operations under the "Southwest. Even Better." initiative. The analyst from Bernstein acknowledged the early positive impacts of the plan but expressed caution, noting that significant advancements in the company's business model would require considerable time to implement and reflect in financial outcomes. InvestingPro subscribers can access detailed analysis of Southwest's transformation strategy through comprehensive Pro Research Reports, which provide deep-dive insights into the company's operational metrics.
Additionally, the analyst pointed out potential risks associated with customer reception of Southwest's changes to its product offerings. The airline has shown strong momentum with a 20.7% price return over the past six months, despite posting a loss in the last twelve months.
The company has announced another Accelerated Share Repurchase (ASR) program, committing $750 million in the first quarter of 2025. This move is part of a larger $2.5 billion share buyback plan authorized in September, with $1.5 billion still to be executed after this ASR.
Bernstein's analyst highlighted that while share repurchases like the ASR can provide a short-term boost to earnings per share (EPS), they do not contribute to the improvement of the airline's recurring earnings.
With revenue growth of 7.61% and analysts predicting profitability this year, this stance underpins the firm's decision to maintain a Market Perform rating, signaling a wait-and-see approach to Southwest's stock as the company continues to navigate its strategic initiatives.
In other recent news, Southwest Airlines revised its Q4 revenue outlook upward, expecting an increase in revenue per available seat mile of 5.5% to 7.0%.
This positive forecast is supported by six analysts who recently revised their earnings upwards for the upcoming period. The airline also plans to initiate an additional $750 million accelerated share repurchase program in Q1 2025. However, UBS and Goldman Sachs (NYSE:GS) assumed coverage on Southwest with a Sell rating, citing risks to future earnings.
On the other hand, Morgan Stanley (NYSE:MS) upgraded Southwest to Overweight, setting a target at $42, indicating a positive outlook for the airline. In other developments, Southwest Airlines appointed Rakesh Gangwal as the independent Chair of the Board of Directors and terminated its common stock purchase rights. Lastly, the Transportation Security Administration recently experienced its busiest day in history, screening over 3.087 million individuals at airports across the United States.
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