Activist investor Elliott Investment Management has snapped up a nearly $2 billion stake in Southwest Airlines (NYSE:LUV), the Wall Street Journal reported. Elliott aims to push for changes at the carrier, which posted disappointing first-quarter results even as travel demand continues to be robust. LUV stock has declined about 10% over the past year.
Elliot Seeks Turnaround at Southwest Airlines
Elliott is reportedly one of Southwest Airlines’ largest investors and seeks to hold discussions with the management about initiatives that could help the company rebound from its dismal performance. The activist investor is known for triggering management shake-ups and strategic actions at several companies, including Crown Castle (NYSE:CCI) and NRG Energy (NYSE:NRG).
Southwest has been underperforming peers like Delta Air Lines (NYSE:DAL), despite solid travel demand that is defying macro challenges. Increased labor costs related to new contracts and delays in deliveries of new aircraft from Boeing (NYSE:BA) are weighing on Southwest’s results.
In Q1 2024, Southwest’s adjusted loss per share widened to $0.36 per share from $0.27 per share in the prior-year quarter. The company’s operating revenue grew 11% to $6.3 billion but lagged analysts’ consensus estimate of $6.4 billion.
The low-cost carrier, which operates an all-Boeing 737 fleet of airlines, expects to receive only 20 Boeing 737 Max 8 planes compared to its previous estimate of 46. The company cautioned that aircraft delivery delays pose major challenges to its 2024 and 2025 performance.
Is Southwest a Buy Right Now?
In late May, Argus analyst John Staszak downgraded Southwest Airlines to Hold from Buy. The analyst expects the company’s recovery to take more time than expected due to the delay in aircraft deliveries and higher employment costs.
The analyst lowered his 2024 and 2025 earnings per share (EPS) estimates to reflect LUV’s lower capacity and a decline in the number of flights that the carrier can operate.
Overall, Wall Street is sidelined on LUV stock, with a Hold consensus rating based on three Buys, 10 Holds, and one Sell recommendation. At $28.68, the average LUV stock price target implies a modest upside potential of 3.4% from current levels.
