Barclays: Time To Sell Southwest, Unless You Can 'Build A Time Machine To 1998'
In a report published Thursday, Barclays analyst David E. Fintzen downgraded the rating on Southwest Airlines Co (NYSE: LUV) from Overweight to Underweight, while reducing the price target from $50 to $39, saying that the company has moved from being a "margin ‘catch-up' story of 2012-2014" to an "average 'big 4' airline trading at too large a premium."
As the company shifts from witnessing "unusual growth opportunities" this year to a "more normal" 2016, it may be challenging to achieve even the diminished 6 percent growth rate. This could result in "disappointing relative margin performance," analyst David Fintzen said. "The risk we see ramps in November/December, where initial schedules show a heavy emphasis towards longer markets where we think LUV's model is 'hit or miss'."
In the report Barclays noted, "How to Build a Time Machine to 1998? One place we could be wrong is if LUV finds a way to better replicate its shorthaul dominance into medium-to-longer routes and larger metro cities. We're hard pressed to see a simple, elegant solution."
One solution could be a more traditional legacy product, which comes with "sacrifices to costs." In the event Southwest Airlines is able to identify such a solution, the implications would be advantageous for its shareholders, but could add "sizable risk to our 'balance of power' industry thesis," Fintzen added.
Latest Ratings for LUV
|Oct 2016||Bernstein||Initiates Coverage On||Outperform|
|Sep 2016||Imperial Capital||Initiates Coverage on||Outperform|
|Jul 2016||JP Morgan||Downgrades||Overweight||Neutral|
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