Southwest Airlines

Southwest shares are up about 15% this year. The AirTran takeover was generally well received, but it does raise questions. For instance, Southwest will take over a hub operation in Atlanta. Southwest does not like delays, but hubs at busy airports are routinely impacted by delays. Southwest does like growth, but it has grown so big that the only place it can really generate impactful growth is at big airports -- so let's try on the world's biggest airport for size!

Southwest said it will have one-time costs of $670 million in cash paid to AirTran shareholders (with another approximately $700 million paid in stock) plus $300 million to $500 million in one-time transition costs. In return, the carrier gains annual synergies in excess of $400 million by 2013. Avondale Partners analyst Bob McAdoo called the deal "s strong positive" for Southwest, which will be able to expand into the East where it "has only modest penetration and to make that entrance in a relatively smooth, efficient manner."

Meanwhile, Soleil Securities analyst James Higgins wrote Tuesday that he is raising his target price for Southwest to $14 from $12 because he now estimates 2013 earnings of $1.30 a share. But he retains a hold on the shares, as does Keay. Higgins said the acquisition will not "substantially increase Southwest's longer-term growth rate after the merger benefits are realized, and in the meantime we expect significant deceleration in EPS gains."

--Written by Ted Reed in Charlotte, N.C.

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