Why Southwest Airlines Co. Will Fly in 2014
While Fools should generally take the opinion of Wall Street with a grain of salt, it's not a bad idea to take a look at particularly stock-shaking analyst upgrades and downgrades -- just in case their reasoning behind the call makes sense.
What: Shares of Southwest Airlines climbed 3% this morning after Imperial Capital upgraded the airline operator from in-line to outperform.
So what: Along with the upgrade, analyst Bob McAdoo boosted his price target to $26 (from $17), representing about 26% worth of upside to yesterday's close. While contrarians might be turned off by the stock's sharp rise over the past six months, McAdoo thinks there's plenty of room to fly given his view that the looming Wright Amendment expiration will boost Southwest's new routes.
Now what: Imperial now sees Southwest posting 2014 EPS of $1.56, up from its prior view of $1.22. "Upon expiration of the Wright Amendment in October, we expect Southwest to see incremental benefit from the new long haul routes," noted McAdoo. "These additional flights, coupled with flat network capacity in 2014, suggest that less profitable Southwest routes are likely to be culled from the network to free up aircraft for routes with better economics."
With the stock up 90% over its 52-week lows and trading at a P/E of 20, however, I'd wait for a wider margin of safety before betting on that outlook.
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The article Why Southwest Airlines Co. Will Fly in 2014 originally appeared on Fool.com.Brian Pacampara has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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