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On Tuesday, Bernstein adjusted their stance on Southwest Airlines Co. (NYSE:), upgrading the stock from Underperform to Market Perform, and increased the price target to $32.00, up from the previous $26.00. The revision follows a reassessment of the domestic market conditions, which appear to be improving.
The firm’s decision to upgrade Southwest’s stock rating is based on the recent developments in the domestic market that have outperformed initial expectations. Bernstein noted that the previous downside risks that warranted an Underperform rating no longer seem to justify such a pessimistic outlook.
Despite the upgrade, Bernstein maintains a cautious view on Southwest’s stock, citing concerns over its current high valuation and potential vulnerability to shifts in market sentiment, particularly regarding domestic airfare pricing. The firm believes that there is still more downside than upside potential for the airline’s shares.
The original downgrade to Underperform was predicated on the belief that a maturing domestic market and rising costs would lead to earnings in 2024 falling short of the consensus at the start of the year. However, the recent performance of the domestic market has been more robust than expected, despite the forecasted cost pressures being as challenging as anticipated.
Bernstein’s analysis suggests that the airline’s financial performance in the domestic market could be stronger than previously predicted, leading to the revised rating and price target for Southwest Airlines. The new price target of $32.00 reflects this updated outlook.
InvestingPro Insights
Following Bernstein’s reassessment of Southwest Airlines Co. (NYSE:LUV), the InvestingPro data paints a detailed financial picture of the company. With a market capitalization of $20.24 billion and a price-to-earnings (P/E) ratio of 43.79, Southwest shows a significant valuation in the market. The adjusted P/E ratio for the last twelve months as of Q4 2023 stands at 21.64, indicating a potentially more reasonable valuation when considering the company’s earnings over the past year. Additionally, the company has experienced a revenue growth of 9.56% over the last twelve months as of Q4 2023, signaling a strong performance in the domestic market that Bernstein has noted.
InvestingPro Tips further reveal that Southwest holds more cash than debt on its balance sheet, which could provide a cushion against market volatility and cost pressures. Furthermore, the company is expected to be profitable this year, with net income projected to grow. This aligns with Bernstein’s updated outlook, which acknowledges the airline’s financial performance could be stronger than previously predicted. For investors looking for more insights, there are 10 additional InvestingPro Tips available, including analyst earnings revisions and profitability metrics, which can be found at: https://www.investing.com/pro/LUV.
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