5 Huge Analyst Calls: Southwest a Sell at Redburn - 'We See Downside Risk'
Here is your Pro Recap of the top takeaways from Wall Street analysts for the past week: upgrades for Margeta and Deciphera Pharma, and downgrades at Southwest Airlines, FibroGen, and Stanley Black & Decker.
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What happened? On Monday, Redburn downgraded Southwest Airlines (NYSE:LUV) to Sell with a $27 price target.
What’s the full story? Redburn is lowering its earnings estimates for Southwest as the airline faces lower revenue and higher costs in the third quarter of 2023. Redburn also doubts that Southwest can improve its top line or margins next year, given the oversupply and competition in the U.S. domestic market, where Southwest plans to expand its capacity by more than 8%.
The analysts say they believe «unit revenues will continue to face downward pressure, which is not expected by consensus. Couple this with the company trading above through-cycle P/E, and we see downside risk.»
Southwest hopes to boost its profitability by $500 million by optimizing its network and focusing on leisure routes, but Redburn is skeptical about this strategy, as new routes take time to mature and face increased competition from other airlines, in particular the ultra-low-cost carriers.
Southwest already faces more direct competition on its routes than it did in 2019: 62% of its capacity is on routes where it has at least one competitor, compared with 58% in 2019, according to the analyst. Frontier (NASDAQ:ULCC) and Spirit (NYSE:SAVE) are the two airlines that overlap most with Southwest’s network.
Sell at Redburn means, "Redburn argues that the stock price will be lower over one year."
How did the stock react? LUV equity dropped
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