Southwest downgraded to Sell from Neutral at Citi

Citi analyst Stephen Trent downgraded Southwest (LUV) to Sell from Neutral with a price target of $29.50, down from $31.50. Southwest’s earnings quality and free cash flow conversion look weaker than they did before the pandemic, the analyst tells investors in a research note. The firm says that as U.S. network airlines enjoy positive earnings quality and free cash flow trajectories, other carriers “have overtaken Southwest on these fronts.” However, Southwest now trades at a bigger price-to-earnings premium to the group than it did pre-COVID, contends Citi. Over time, the firm sees Southwest’s valuation correcting to more normalized levels, as the network carriers’ premium travel gains, limit Southwest’s efforts to penetrate that category.