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Today, Bernstein analysts downgraded the stock to Market Perform from Outperform with a price target of $32 per share, down from the prior $41. This marks the 4th downgrade since the EPS report and 9th since the start of 2023.
“We have lost confidence in the earnings trajectory of LUV as margin recovery is lower than expected with no clear-cut exit out of near term headwind,” the analysts said in a client note.
The company’s adjusted EPS of $1.09 missed analyst expectations by 1%, while LUV guided down on every unit metric.
“We had been expecting LUV to recover to 2019 levels of profitability with the rest of the group. That clearly isn’t happening, and we don’t have confidence in a near term acceleration. The company has been under accruing for labor costs and needs to keep pace with higher cost peers, despite not having the same exposure to premium revenue,” they added.
“The company has a sub-optimal fleet, which is leading to too much capacity growth and load factors that are lagging peers. Finally, the traditional network strength of Southwest (thick lines connecting a smaller number of dots on the map) is misaligned with market demand and will take some time to adapt to the new normal.”
Shares are down nearly 1% in pre-open Monday.
