Skip to main content
Publish date:

Southwest Airlines Flying High on Goldman Upgrade

Southwest is in a good position to recover faster from the coronavirus pandemic, a Goldman Sachs analyst says.

Southwest Airlines'  (LUV) - Get Southwest Airlines Co. Report mostly domestic network and relatively strong balance sheet will drive a faster recovery from the coronavirus pandemic shutdown, according to a Goldman Sachs analyst who raised on rating on the air carrier Monday to buy from sell.

Shares of the Dallas airline were up 9.2% to $34.90.

Analyst Catherine O'Brien, who also raised her share price target to $47 from $35, said in a note to clients that Southwest's shares "have historically been relatively less volatile than the industry, and we therefore think this level of upside merits a Buy rating."

O'Brien also said that since liquidity remains a concern for the industry, balance sheet strength is currently of even more importance than usual.

TheStreet Recommends

"We now expect traffic for the carriers in our coverage universe to recover to 2019 levels in 2023 as opposed to 2022," she said. "However, while we are taking the view that demand recovery will be slower than we were previously expecting, we continue to believe that demand for air travel will return to pre-Covid-19 levels and ultimately continue to grow from there."

The analyst also said that she didn't believe that the financial performance of the U.S. airlines through "the unprecedented demand downtown following the outbreak of Covid-19 disproves the industry will continue to be more profitable than it has been been over its longer history."

O'Brien also downgraded Allegiant Travel (ALGT) - Get Allegiant Travel Company Report, explaining that she still believes the Las Vegas company is positioned for a relatively quicker rebound from the coronavirus outbreak, she does not believe the current risk-reward merits a buy rating. Shares were up 3.6% to $110.50.

Last week, Southwest announced that it was offering $39 flights as part of its fall-fare sale. The company also recently raised its revenue and capacity outlook for the month of June due to improved passenger demand and bookings as coronavirus lockdowns ease.