Southwest Airlines: Strong Sell, Analyst Outlook Bleak

Southwest Airlines Company (NYSE:LUV) was recently downgraded to a Zacks Rank #5 (Strong Sell) as a significant number of analysts estimates for the stock have been lowered for the current and next quarter, as well as for the next quarter and year. After being one of the top performing stocks on the S&P 500last year, the company has seen its stock price decline by approximately 25% from its all-time high in January.

The following is a figure that shows the earnings estimate revisions made by analysts in the recent past:

Earnings Estimate Revisions

Earnings Estimate Revisions

One can clearly see that analysts do not feel as strongly about Southwest’s stock as they once did. After having such a strong prior year, the current and following years do not seem to have as positive of an outlook, in analysts’ opinions.

Specifically, analysts from Barclays (LONDON:BARC) released a report in which they changed their rating on Southwest, from overweight, to underweight, stating that the company’s growth will likely normalize in 2016. The analysts from Barclays also changed their price target from $50 down to $39.

Southwest has high growth projection percentages for the current quarter (50.86%), the next quarter (65.05%), and the current year (70.01%), but their projected growth percentage for next year (.83%) represents the expectation of a major drop off in growth. While this does stem from the company simply not growing as much next year as it will this year, it is also because of the massive amount of growth felt by the company this year is just not sustainable as time goes on and especially given the intense competition.

Southwest is still poised for growth in the current year, but investors should not expect the company to continue to grow at the current magnitude that it has been. As of now, we have the stock as a Strong-Sell, meaning it is in the bottom 5% of stocks in the ranking system. It will be interesting to follow how Southwest’s stock, as well as the company as a whole, fares throughout the rest of this year as the cutthroat airline market hits a variety of stocks in this in focus sector.


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