Evercore ISI analysts downgraded shares of Southwest Airlines (NYSE:LUV) to In Line from Outperform in a note Tuesday covering the airline sector.
Analysts said the firm is lowering some ratings and «taking some chips off the table» in the sector following a strong fourth-quarter outperformance.
«We're moving to the sidelines [on LUV] as the near-term risk-reward is balanced, in our view,» wrote the analysts. «2023 was a transition year for the company as it recovered from operational challenges in December of 2022 and worked to get new labor contracts in place.
The firm does not agree with the bear case it repeatedly heard over the balance of last year that the company is uniquely structurally challenged post-COVID. However, they believe LUV's current growth rate feels out of sync with the current pace of US economic growth.
»We're below Street for '24 and see our margin outlook as below long-run potential. Southwest will adjust over time, and we will look to revisit the story when greater relative margin progress is evident," said the analysts.
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