Citi Elevates Southwest Airlines (LUV) Price Target, Prefers Rivals

Southwest Airlines stock (NYSE: LUV) has been given a boost after receiving a price target revision by Citi analyst Stephen Trent, raising the benchmark to $31.50 from the former $28.25.

Despite this uptick in target, Citi maintains a Neutral stance on the shares, preferring a couple of competitors as indicated later in the piece. This change unfolds against a backdrop of preparations for the airline's third-quarter earnings report and a broader analysis of the industry's prospects for the latter part of 2023.

Having fallen 1% in trading yesterday, Southwest Airlines' stock price is pushing up in the pre-market session, up 1.76% at $30.09. The stock is trading towards the upper end of it's 52-week range, with a respective low and high, of $21.91 and $35.18.

Citi's price target revision is buoyed by several industry metrics. Analyses point to a harmonious interplay of airline supply and demand, suggesting a protracted period of capacity growth moderation. This trend, coupled with a sustained demand and lower interest rates, presents a positive industry outlook heading into the fourth quarter of the year. Despite potential disruptors such as November's elections, Middle East tensions, and a looming port strike, Citi remains optimistic about the industry's setup.

Moreover, Citi signals Buy-rated Delta (NYSE: DAL) and United (NASDAQ: UAL) as having notably strong positioning in anticipation of earnings reports. For Southwest specifically, a combination of stronger unit revenue and marginally reduced fuel prices in the third quarter informed the boosted price target.

Southwest Airlines, headquartered in Dallas, Texas, is a mainstay in the airline industry, currently serving 121 destinations across the United States and ten near-international countries, including popular vacation spots in Mexico and the Caribbean. The company's strategy includes a robust loyalty program and an array of digital platforms designed to streamline the customer's travel experience. With a fleet of 817 Boeing 737 aircraft, Southwest continues to command significant market share in the industrials sector.

As of the latest market data, the company boasts a market capitalization of approximately $17.7 billion. Financial insights reveal a trailing P/E ratio of 227.46, a more conservative forward P/E ratio of 22.23, and a dividend yield sitting at 2.43%, emanating from a $0.72 dividend rate. Southwest's financial health is further evidenced by its total revenue amassing over $27 billion and a net income to common amounting to $78 million. The company is massively backed by institutional investors, who hold an impressive 99.66% of the company's stock.

Analysts' sentiment toward the stock is relatively measured, with an average price target settling at $26.94 and an overall recommendation to hold, based on 15 opinions. Nonetheless, stronger unit revenues and slight relief in fuel expenditures bolster Southwest, sustaining confidence in its future performance.

In conclusion, the re-calibration of Southwest's price target by Citi is indicative of a broad-based belief in the airline's enduring growth potential, aided significantly by current industry dynamics and internal financial stability. Despite the sustained Neutral rating, the outlined factors lend credibility to a possibly robust endurance through the end of the year and beyond.