Analysts at investment firm TD Cowen on Friday downgraded Texas-based airline company Southwest Airlines (NYSE:LUV) from Outperform to Market Perform. The downgrade comes on the heels of a disappointing Q3 earnings report by the company.
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TD Cowen analyst Helane Becker, in a research note, said that despite the sour Q3 profit, the figures were still better than the firm’s forecast. However, she noted that Southwest’s profit was lower than the consensus.
According to Becker, the company’s management is focused on improving the results and will reduce capacity growth. However, the analyst noted potential headwinds, which include balance sheet destruction, overcapacity, high costs, and lower yields.
Furthermore, Becker pointed out that unlike in previous downturns, where the company grew its market share, Southwest’s recent performance does not suggest it can replicate such results. She continued by saying that the lack of a premium product and too much capacity in business-focused markets are some of the issues affecting the company’s revenue growth.
Despite the promising outlook from Southwest’s CEO Robert Jordan, TD Cowen cut its earnings per share estimate for 2024 from $1.49 to $0.54, lower than the consensus estimate of $2.18. However, the firm expects the consensus estimate to drop going forward.
Shares of LUV fell over 4% at the close of Friday’s trading session.
What is the Future of LUV Stock?
Turning to Wall Street, analysts have a Hold consensus rating on LUV stock based on one Buy, five Holds, and one Sell assigned in the past three months, as indicated by the graphic above. Furthermore, the average LUV price target of $29.07 per share implies a 29.78% upside potential.
