Southwest Airlines Downgraded to Underperform by Bernstein
Bernstein analysts have downgraded shares of Southwest Airlines (NYSE: LUV) from Market Perform to Underperform. They have also lowered the price target for the stock to $24 from $29 per share. According to analysts, the company’s model is currently under pressure, and its cost structure is in a state of transition.
Analysts: Southwest Airlines’ Model Under Pressure, Cost Structure in Transition
Bernstein analysts believe that Southwest Airlines’ discount airline model is disadvantaged in the new world of airline marketing. They argue that the company is facing both secular and idiosyncratic cost pressures, which will prevent its earnings power from reaching pre-pandemic levels in the near term. The analysts state that 2023 was a challenging year for the airline, and 2024 is expected to be a transitional year.
2024 Outlook for Southwest Airlines Troubling, Analysts Warn
The analysts expect the outlook for Southwest Airlines in 2024 to be worse than expected. They identify several factors that are causing difficulties for the company, including a new pilot contract, secular cost headwinds, fleet constraints that are adding to network costs, and shifts in demand that are stressing the traditional point-to-point network model.
Bernstein: LUV Stock Not Reflecting Weaker Outlook Compared to Network Carriers
Despite these challenges, Southwest Airlines’ stock performance has not fully reflected the weaker outlook compared to network carriers, according to Bernstein. The analysts note that the stock’s performance has been in line with that of other network carriers, and its multiple has expanded as the market expects an earnings inflection. However, they argue that the valuation should come down from pre-pandemic levels as EBITDA margins continue to lag and negative cash flow limits valuation support.
Valuation of Southwest Airlines Should Come Down, Says Bernstein
Bernstein analysts believe that the valuation of Southwest Airlines should come down as the company faces ongoing challenges. They argue that the company’s EBITDA margins are still below pre-pandemic levels, and negative cash flow limits the support for its valuation. Therefore, they recommend a more cautious approach to investing in Southwest Airlines at this time.
In conclusion, Bernstein analysts have downgraded Southwest Airlines to Underperform and lowered the price target for its stock. They believe that the company’s model is under pressure, and its cost structure is undergoing a transitional phase. The analysts also warn that the 2024 outlook for Southwest Airlines is troubling, and the stock’s valuation should come down to reflect the company’s challenges.
Analyst comment
Negative news: Southwest Airlines Downgraded to Underperform by Bernstein
As an analyst, the market is likely to react negatively to this news. The downgrade and lowered price target indicate that Southwest Airlines is facing challenges with its model and cost structure. The 2024 outlook is also expected to be worse than initially anticipated. The valuation of the stock should decrease to reflect the company’s ongoing challenges.
