Analysts are starting to lose conviction in Southwest Airlines
- Southwest Airlines issues disappointing guidance for its fiscal Q3.
- Deutsche Bank and Raymond James downgraded LUV on Friday.
- Southwest Airlines stock is roughly flat for the year at writing.
Deutsche Bank just moved to the sidelines in Southwest Airlines Co (NYSE: LUV) as it’s still struggling to push its revenue back to the pre-pandemic level.
Southwest had a relatively weak second quarter
Copy link to sectionThe air carrier came roughly in line with FactSet consensus in its second financial quarter. Still, Michael Linenberg told clients in a research note:
After comparing June quarter operating and pre-tax margins to the four airlines, Southwest did not look so fine ranking last. It’s falling behind peers from a revenue diversification perspective.
The Deutsche Bank analyst downgraded Southwest Airlines stock to “hold” on Friday.
Linenberg is disappointed primarily because the airline said it will likely continue to wrestle with higher costs and lower unit revenue in its current quarter. Its shares pay a dividend yield of 2.14% at writing.
Southwest issued downbeat guidance for Q3
Copy link to sectionSouthwest Airlines expects up to 76 cents of per-share earnings in its third quarter – materially below expectations. According to Michael Linenberg:
Our sense is that Southwest is punching below its weight class with respect to revenue generation, possibly due to the fact that it has yet to fully achieve network optimization.
Note that the air carrier is committed to year-on-year margin expansion in fiscal 2023. Still, Raymond James also downgraded Southwest Airlines stock on Friday.
Analyst Savanthi Syth dubbed it a “Texas-size heartache” and said profitability was unlikely to recover to pre-COVID levels until late 2024 or even 2025. The airline stock currently pays a dividend yield of 2.14%.
