In a recent note, Savathi Syth, an analyst at Raymond James, expressed her approval of Southwest Airlines’ decision to change its flight schedule to adapt to the post-pandemic shift in air travel. However, Syth cautioned that the benefits of this move may not be immediately apparent; it could take up to six months for them to be felt.
As a result of this analysis, Syth downgraded her rating on Southwest’s stock from “strong buy” to “outperform.” She also revised the timeline for the airline’s expected return to 2019-level profitability, pushing it back from 2024 to 2025. This adjustment was made to ensure greater confidence in the effectiveness of various initiatives put forth by the company.
Despite these changes, Syth emphasized that she does not believe the Southwest model is fundamentally flawed. Instead, she believes that the valuation of the company should account for its robust financial position, which sets it apart from others in the industry.
Southwest Airlines recently reported disappointing second-quarter earnings, causing its stock to suffer an 11% loss this week. Investors are growing concerned about lower revenue and higher costs. As a result, the stock is down 1% for the year, in stark contrast to the approximately 20% gains seen by the S&P 500 index and the 17% gains seen by the U.S. Global Jets ETF.
Overall, while Southwest Airlines faces challenges in the near term, their strategic adjustments and strong financial position make them an airline worth watching as the industry continues to recover from the impact of the pandemic.