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Barclays: Time To Sell Southwest, Unless You Can 'Build A Time Machine To 1998'

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Barclays: Time To Sell Southwest, Unless You Can 'Build A Time Machine To 1998'
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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

DateFirmActionFromTo
Dec 2017Atlantic EquitiesUpgradesNeutralOverweight
Nov 2017Morgan StanleyMaintainsOverweight
Nov 2017JP MorganMaintainsOverweight

View More Analyst Ratings for LUV
View the Latest Analyst Ratings

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