Stifel Upgrades Southwest Airlines, Says It Will Exit The Coronavirus Crisis Stronger

The recent pressure on Southwest Airlines Co’s LUV stock has created an attractive entry point into a company that will “undoubtedly” exit the current crisis in a stronger position than it had entered, according to Stifel.

The Southwest Airlines Analyst

Joseph DeNardi upgraded Southwest Airlines from Hold to Buy, raising the price target from $40 to $50.

The Southwest Airlines Thesis

Southwest Airlines is building a “liquidity war chest,” which should drive earnings power as the market recovers and allow the company to “play offensive” when some of its peers are unable to do the same, DeNardi said in the note.

He added that although the capital raising has caused near-term dilution, the market seems to be underappreciating the returns Southwest Airlines can generate from the capital it has raised.

There is high uncertainty around the pace of demand recovery, but DeNardi said air travel has historically been more resilient than most other sections. He mentioned the crisis will offer consolidation opportunities, which will boost airline earnings power in the longer term. Airline earnings power will also increase with higher barriers to entry.

“We believe Southwest's financial capacity, balance sheet strength, capex flexibility, strong brand, and diverse network position it well to emerge competitively stronger with improved earnings power on the other side of the COVID-19 crisis,” DeNardi wrote.

LUV Price Action

Shares of Southwest Airlines had risen almost 1% to $31.16 at time of publication Thursday.