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Southwest Rises as Analyst Sees Airline Amassing Offensive War Chest

Southwest's growing cash stockpile could give it the ability to go on offense when business and air travel begin to recover, a Stifel analyst contends.

Shares of Southwest Airlines  (LUV)  flew higher Thursday after winning a vote of confidence from an analyst in the carrier's ability to emerge from the coronavirus crisis in a position of relative strength.

Southwest's stock price rose 1.40% to $31.40 a share after an upgrade from Stifel analyst Joseph DeNardi.

The Stifel analyst boosted his rating on Southwest, which has been battered by severe financial turbulence amid a dramatic drop in air travel due to the Covid-19 pandemic, to buy from hold.

Stifel's DeNardi also hiked his price target on Southwest to $50 a share, up from $40 a share. That represents a nearly 60% premium over its current trading price.

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The Stifel analyst contends that Southwest current pricing - and its underperformance relative to some competitors - offers an opportunity for investors.

And Stifel's DeNardi sees a longer-term strategy at work in Southwest's corporate suite, with the airline piling away cash for later showdown with its competitors as air travel and business eventually rebounds.

Southwest is amassing "a liquidity war chest to play offense, at some point, when certain of its peers will be unable to do so," the Stifel analyst wrote.

DeNardi also argued that the markets don't have a full appreciation of Southwest's ability to wring out superior returns from its capital stockpile.

The average analyst price target on Southwest is $42.94, according to Bloomberg. That represents a 36% premium, putting Stifel's $50 price target on the high side, although it is not the highest. Analyst price targets range from $34 a share to $62 a share.