Southwest Airlines Remains Imperial Capital's Top Airline Pick

• Shares of Southwest Airlines Co. LUV have risen by 11.35 percent over the last three months.
• Imperial Capital’s Scott Buck has maintained an Outperform rating and price target of $64 on the company.
• Buck expects Southwest Airlines to be the first legacy carrier to guide to positive PRASM growth, with the stock well positioned to benefit from such growth.

Buck expects the company to guide to positive PRASM trends as early as 4Q15, “given that many new Dallas Love Field routes will anniversary, making for easier year-over-year comparables.”

Since this would be a positive catalyst for the stock, Buck recommends that investors accumulate Southwest Airlines’ shares ahead of a positive change in investor sentiment.

In addition, the company is likely to continue to use its cost savings from lower fuel prices to further strengthen its “investment grade” balance sheet, while returning additional capital, via share buyback and dividends, to shareholders.

Also, given the “expiration of the Wright Amendment in October 2014 and new slot acquisitions in both New York – LaGuardia and Washington – National, a significant portion of Southwest’s capacity remains under development,” according to the Imperial Capital report.

The EPS estimate for 2015 has been lowered from $3.69 to $3.55, “to more accurately reflect the impact of profit sharing on 2H15 results.”