LUV - Southwest Airlines' Recovery Is Encountering Turbulence (Rating Downgrade)

2024-07-20 10:40:59 ET

Summary

• Southwest Airlines has faced challenges in recent years, including a revenue guidance revision and Elliott Investment Management's purchase of a significant stake in the company.
• The airline is transitioning to a new revenue management system, which has impacted revenue performance, and is also dealing with delays in Boeing's delivery of the MAX 7 aircraft.
• Despite Southwest's strong track record and balance sheet, uncertainties surrounding revenue growth even as it remains committed to its key stakeholders.

Southwest Airlines ( LUV ) has had a difficult couple of years and yet I have written on several occasions, most recently just three months ago, that “Southwest Airlines is Set to Soar Again” and gave the stock a BUY rating. A number of events have taken place both in the industry and at LUV over the past three months and yet Seeking Alpha analysts have maintained a collective buy rating on the stock in a disconnect from both Seeking Alpha’s highly regarded quant system as well as Wall Street analysts, both of which now rate the stock as a hold. In fact, the SA Quant system has rated LUV a hold for most of 2024 with a few brief stretches of a buy rating. Collectively, Wall Street analysts have not had a buy rating on LUV for almost a year. In light of industry and company-specific updates and events over the past three months, it is worth evaluating if LUV still merits a buy rating from me....

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