Argus Downgrades Southwest Airlines On Lower Demand Following April's Engine Failure

Argus Capital Markets analyst John Staszak on Friday downgraded Southwest Airlines Co LUV from Buy to Hold.

The Thesis

The analyst believes Southwest is well-managed and financially strong, but that shares are fairly valued at its current price.

The low-cost airline is focused on the domestic market, which is expected to be outpaced by the international market this year.

The key risk at the moment is reduced demand as a result of flight 1380’s engine failure on April 17, which led to one passenger’s death and eight others being injured. During Southwest’s most recent earnings call, management reduced revenue per available seat mile guidance towards the lower end of the previous range.

It's worth noting, though, that Argus maintained a five-year Buy rating on the company, indicating Southwest’s long-term stability and potential.

“We continue to expect above-peer-average revenue growth over the long term,” said Staszak in a note.

Price Action

Southwest shares fell marginally Friday after the open, but recovered to trade nearly flat around $51.89 at time of publication.

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