On Tuesday, Jefferies began coverage of Southwest Airlines Co. (NYSE:LUV), assigning the stock a Hold rating with a price target of $73.00. The new price target suggests a total shareholder return of approximately 9%. Currently trading at $32.66 with a market capitalization of $19.6 billion, Southwest is focused on selling its approximately $1.4 billion stake in Centuri Group, Inc. (CTR).
According to InvestingPro data, nine analysts have recently revised their earnings estimates upward for the upcoming period, suggesting growing confidence in the company's prospects. This sale is expected to significantly improve Southwest's balance sheet, potentially leading to a 1-2 notch credit rating upgrade and enabling share buybacks.
The analyst believes that while the strategy is positive, the actual execution of selling 81% of a spin-off could present challenges. Despite these concerns, the analyst views Southwest's pro-forma balance sheet favorably, noting that it stands above its gas utility peers.
InvestingPro analysis shows that Southwest holds more cash than debt on its balance sheet, though its short-term obligations currently exceed liquid assets. Moreover, the improving regulatory environment in Arizona is seen as a positive factor that warrants a 6% premium in valuation compared to its industry counterparts.
Southwest's financial flexibility and operational performance are key areas of interest for investors, with the company's efforts to improve its balance sheet through the sale of its Centuri stake being closely watched.
While not profitable over the last twelve months, InvestingPro analysts predict the company will return to profitability this year. The potential for credit rating upgrades and shareholder return enhancements through buybacks are contingent on the successful execution of this strategy. Discover more insights and 6 additional ProTips with an InvestingPro subscription.
The airline industry, which Southwest is a part of, is subject to various external factors such as fuel prices, regulatory changes, and competitive dynamics. As a prominent player in the Passenger Airlines industry with revenue of $27.4 billion in the last twelve months and revenue growth of 7.6%, Southwest continues to strengthen its financial position to navigate through the cyclical nature of the industry.
Southwest's current strategy reflects the company's focus on maintaining financial health and delivering value to its shareholders. The outcome of its efforts to sell its Centuri stake will be a significant indicator of the company's future financial trajectory and its ability to execute on its strategic initiatives.
In other recent news, Southwest Airlines is witnessing significant changes in its corporate structure and strategy. CFO Tammy Romo is set to retire, alongside Chief Administration Officer Linda Rutherford. The company is initiating a search for their replacements.
Meanwhile, Raymond (NS:RYMD) James analyst Savanthi Syth reaffirmed an Outperform rating for the airline, maintaining a steady price target. Southwest Airlines has also finalized a sale-leaseback transaction with Babcock & Brown Aircraft Management involving 36 Boeing (NYSE:BA) 737-800 aircraft, a significant move in its multi-year fleet monetization strategy.
The airline industry, in general, is set to see significant financial improvements due to a 20% drop in Brent crude oil prices over the last year, according to the International Air Transport Association. Research firm Bernstein has maintained a neutral stance on Southwest Airlines, while Morgan Stanley (NYSE:MS) has resumed coverage, assigning the stock an Overweight rating.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.