TD Cowen has maintained its Hold rating on Southwest Airlines Co. (NYSE: NYSE:LUV) with a consistent price target of $25.00.
The firm's analysis comes ahead of the airline's third-quarter financial results, which are scheduled to be released before the market opens on October 24, 2024.
The decision to uphold the Hold rating and the price target was based on updated estimates following Southwest's recent investor day.
TD Cowen's projections for the airline's adjusted earnings per share (EPS) for the third quarter and revenue per available seat mile (RASM) and cost per available seat mile excluding fuel (CASMex) for the fourth quarter are higher than the consensus.
The upcoming third-quarter report is anticipated to align broadly with market consensus, according to the firm. The questions and discussion points during the question-and-answer session of the earnings call are expected to concentrate on unresolved issues and key topics from the investor day, as well as factors pertaining to the company's 2025 financial modeling.
In other recent news, Southwest Airlines has seen a flurry of activity. Director Rakesh Gangwal invested over $100 million in company shares, signifying confidence in the firm's trajectory.
The move followed a significant reshuffle of Southwest's board, driven by demands from Elliott Investment Management for improved financial performance. Despite ongoing tension with Elliott, who continue to push for executive changes, Gangwal opposes further leadership disruptions, warning they could harm shareholder interests.
On the financial front, Southwest announced ambitious targets for 2027, including a $2.5 billion share repurchase program. However, TD Cowen holds a cautious stance on Southwest's stock due to uncertainties surrounding these goals. Despite this, both Barclays and Evercore ISI have maintained positive ratings for the airline, with Evercore ISI upgrading the stock to Outperform.
Southwest also revealed a series of strategic initiatives aimed at improving its financial performance and customer experience. The company increased its third-quarter Revenue per Available Seat Mile (RASM) forecast by 3.5 percentage points and plans to limit its annual capacity growth to between 1% and 2% over the next three years.
InvestingPro Insights
As Southwest Airlines (NYSE:LUV) approaches its Q3 earnings release, InvestingPro data provides additional context to TD Cowen's Hold rating. The company's P/E ratio of 224.58 and adjusted P/E ratio of 32.21 for the last twelve months as of Q2 2024 suggest a high earnings multiple, aligning with an InvestingPro Tip that LUV is "Trading at a high earnings multiple." This valuation metric could be a point of discussion during the upcoming earnings call.
Despite the high valuation, Southwest has shown resilience with a revenue growth of 7.54% over the last twelve months, reaching $27.03 billion. An InvestingPro Tip notes that Southwest is a "Prominent player in the Passenger Airlines industry," which may contribute to its ability to maintain growth in a competitive market.
For investors seeking a deeper understanding of Southwest's financial position, InvestingPro offers 7 additional tips, providing a more comprehensive analysis of the company's prospects and challenges in the current market environment.
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