Southwest Airlines shares jump as JPMorgan double-upgrades, sees $5 EPS by 2026

Southwest Airlines shares climbed over 4% on Friday after JP Morgan issued a rare double upgrade on the carrier, citing growing confidence that a stronger earnings outlook could reshape investor expectations ahead of results later this month.

The analysts lifted their rating and raised their price target to a Street-high $60 from $36, implying roughly 40% upside from Thursday’s close.

JP Morgan said the rally was driven less by near-term earnings and more by anticipation around Southwest’s guidance for 2026.

Analyst Jamie Baker said an earnings-per-share outlook of $5 for that year now looks “attractively probable,” a figure that would far exceed the current market consensus of $2.98.

According to Baker, such an outlook would handily outperform peers and could reignite debate around the underlying strength of Southwest’s business, even as the broader domestic airline market remains challenging.

The analysts cautioned that the market may initially be slow to embrace a bold EPS target, given Southwest’s uneven history with guidance and its past reliance on alternative metrics rather than earnings per share.

A shift in how Southwest tells its story

Southwest has historically avoided providing EPS guidance, preferring measures such as revenue per available seat mile.

However, recent strategic changes mean those metrics may no longer capture the full picture.

The airline has rolled out a series of revenue-enhancing initiatives, including the controversial decision to end its long-standing “bags fly free” policy and move away from open seating.

As a result, JP Morgan expects Southwest to begin guiding investors using EPS, with full-year 2026 seen as a logical starting point.

"In our view, igniting a debate between the health of its core and the impact of an admittedly challenging domestic backdrop, while we don’t expect Southwest to abandon quantifying its initiatives, the pending shift to an EPS guide has sent us back to the drawing board," JP Morgan analysts said.

Baker said the firm’s confidence stems partly from Southwest’s earlier, now-withdrawn guidance that pointed to earnings before interest and taxes of $3.8 billion in 2026.

Even assuming a more conservative outcome, the analysts see an EBIT floor of around $3 billion, well above the consensus estimate of $1.9 billion, translating into roughly $5 in EPS.

Even a lower guide of $4.50 per share, they said, could still justify a sharp re-rating toward their $60 target.

Stock outperforms peers in 2025 despite profit slump

Southwest has already been one of the standout US airline stocks last year, with shares up over 30% over the past 12 months.

That compares with gains of 16% for Delta Air Lines and 11% for United Airlines, while American Airlines shares are down roughly 11% over the same period.

The performance has come despite a sharp hit to profitability.

In the first nine months of the year, Southwest’s profit fell about 42%, underscoring the gap between near-term financial strain and investor optimism around its transformation plan.

Analysts say the stock’s resilience reflects company-specific factors rather than a broad recovery in airline demand.

“What’s helping Southwest’s stock is clearly the initiatives, not the demand environment,” said Savanthi Syth, an airline analyst at Raymond James.

Revenue initiatives take shape

A key part of that transformation begins on Jan. 27, when Southwest will formally abandon open seating in favor of assigned seats across its all-Boeing 737 fleet.

The airline will also introduce extra-legroom seats in the front rows, sold at a premium.

Southwest has estimated that assigned seating and extra-legroom options could generate about $1 billion in pretax earnings next year and $1.5 billion in 2027, providing a significant boost to profitability.

Despite Friday’s rally, skepticism remains.

Data compiled by LSEG show that 26 analysts rate the stock a hold on average, with a median price target of $42, suggesting the market is still divided on how much of the turnaround is already priced in.