UPDATE: J.P. Morgan Downgrades Southwest Airlines on Multiple Negative Factors

In a report published Thursday, J.P. Morgan analyst Jamie Baker downgraded Southwest Airlines (NYSE: LUV) from Neutral to Underweight, and lowered the price target from $13.00 to $12.00.

In the report, J.P. Morgan noted, “Cost convergence, fare unbundling, widespread consolidation, diminished new entrant activity, and return-oriented management teams have combined to form an industry in the US that is actually managing itself for the first time we can recall. This stands in sharp contrast to the historical tendency to wage wars of attrition. As a result, we believe the US airline industry will continue to take the steps necessary to ensure profitability and continued balance sheet repair, as well as increasingly deploy capital in shareholder friendly ways (such as dividends and buybacks). We also believe that given the significant restructuring at Legacy airlines, the once-immense differences between Legacies and Discounter carriers will continue to blur, given that the former category has overtaken the latter on many metrics (such as operating margins and ROIC, though not earnings multiples). As such, we recommend investors focus primarily on airline stocks that are still showing meaningful profit improvement and deleveraging, while attracting new, longer-term investors. With most competitors having eclipsed Southwest's one-time industry-leading metrics and given a significantly stretched valuation (in our view), we believe better risk/reward resides elsewhere; hence, we ascribe an Underweight rating to LUV.”

Southwest Airlines closed on Wednesday at $13.65.