This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Southwest Airlines Gets an Upgrade

DALLAS (TheStreet) - Southwest (LUV - Get Report) got an upgrade Thursday, as Bank of America Merrill Lynch analyst Glenn Engel said the tide may be turning in Southwest's favor.

Engel upgraded Southwest, the fourth-largest airline, to buy from neutral, with a price target of $23. In a note issued Thursday, he said the carrier will benefit next year from growth at Love Field, as the Wright Amendment's restrictions on Love Field flying expire, and from expanded international flying.

Moreover, Engel said that "travel industry bookings show better momentum in small business and leisure flying," where Southwest is strong, than in large corporate travel. At the same time, the growth supply in domestic capacity is rising only about 1% to 2%, while international capacity is expanding 4% to 5%.

Thus, demand for seats in Southwest's marketplace is rising more quickly than demand in its competitors' marketplace, while the supply of seats in Southwest's marketplace is rising less slowly than in its competitors' marketplace, Engel said.

Must Read: American Air Is a Sleeper Stock if US Airways/America West Is a Precedent

Also, Southwest has seen its cost advantage over its competitors diminish over the past decade, but Engel said the situation stabilized in 2013 and could start to expand again as "growth resumes, new labor contracts improve flexibility and wages at other carriers catch up to LUV levels." He also anticipated accelerating buybacks and dividend increases.

Southwest shares closed Wednesday at $17.97, down 61 cents. Shares are up 75% year-to-date. Analysts surveyed by Thomson Reuters estimate 2014 EPS to be $1.25. Engel raised his estimate to $1.25 from $1.15 and raised his price objective to $23 from $18.

Written by Ted Reed in Charlotte, N.C.

To contact this writer, click here.

Follow @tedreednc

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
LUV $39.94 0.00%
AAPL $112.12 0.00%
FB $93.24 0.00%
GOOG $643.61 0.00%
TSLA $220.69 0.00%


Chart of I:DJI
DOW 17,084.49 +33.74 0.20%
S&P 500 2,014.89 +15.91 0.80%
NASDAQ 4,830.47 +19.6820 0.41%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs