Why Raymond James Upgrades Southwest And Frontier, Downgrades Another Airline Stock

Although U.S. airline companies are poised for a stronger near-term revenue trend, they face elevated fuel prices, a potential demand softening and capacity growth moderation, according to Raymond James.

Southwest Airlines

Analyst Savanthi Syth upgraded the rating for Southwest Airlines Co LUV from Outperform to Strong Buy while reducing the price target from $57 to $55.

Southwest Airlines is likely to “retain its position of strength, including a best-in-class balance sheet and cost benefit from a very attractively priced fleet order,” the analyst said in the note.

He added that the company’s relative position could even improve “as current initiatives should enable it to capture a greater share of corporate revenue (relative to 2019 levels), including through up-sell.”

Frontier Group

Syth upgraded the rating for Frontier Group Holdings Inc ULCC from Market Perform to Outperform, while establishing a price target of $14. Frontier Group faces “a longer runway of growth opportunities amidst a potential JetBlue-Spirit merger,” he added.

JetBlue Airways

JetBlue Airway Corporation JBLU will likely be successful in its bid for Spirit Airlines Incorporated SAVE, the Raymond James analyst said. 

Alaska Air

Analyst Syth downgraded the rating for Alaska Air Group, Inc. ALK from Strong Buy to Outperform, while slashing the price target from $75 to $58.

The company faces “potential earnings and operational volatility around exiting the A320 fleet by early 2023,” the analyst wrote.

“While we continue to be constructive on this historically well-managed airline with a relatively unimpaired balance sheet and capital structure, we expect its fleet transition could create elevated cost risk amidst an already tough (industry-wide) operating environment,” he added.

Airline Price Action: Shares of all three airlines were trading lower by 1% to 3% at the time of publication Thursday.