Southwest Airlines (LUV) Receives Upgrade

NEW YORK (TheStreet) -- Southwest Airlines (LUV) was upgraded to "outperform" from "in-line" by Imperial Capital Tuesday.

Southwest gained 2% to $21.02 in early trading.

The firm set a price target of $26 for the airline stock, up from the previous price target of $17. Expiration of the Wright Amendment could lead to big route optimization for Southwest. The upgrade comes just one day after the airline announced it will start offering International flights.

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Separately, TheStreet Ratings team rates SOUTHWEST AIRLINES as a Buy with a ratings score of B+. TheStreet Ratings Team has this to say about their recommendation:

"We rate SOUTHWEST AIRLINES (LUV) a BUY. This is driven by a few notable strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its impressive record of earnings per share growth, revenue growth, largely solid financial position with reasonable debt levels by most measures, solid stock price performance and good cash flow from operations. We feel these strengths outweigh the fact that the company shows low profit margins."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • Despite its growing revenue, the company underperformed as compared with the industry average of 14.0%. Since the same quarter one year prior, revenues slightly increased by 6.1%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • SOUTHWEST AIRLINES reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, SOUTHWEST AIRLINES increased its bottom line by earning $1.06 versus $0.56 in the prior year. This year, the market expects an improvement in earnings ($1.30 versus $1.06).
  • Powered by its strong earnings growth of 172.72% and other important driving factors, this stock has surged by 86.97% over the past year, outperforming the rise in the S&P 500 Index during the same period. We feel that the stock's sharp appreciation over the last year has driven it to a price level which is now somewhat expensive compared to the rest of its industry. The other strengths this company shows, however, justify the higher price levels.
  • Net operating cash flow has increased to $302.00 million or 30.73% when compared to the same quarter last year. Despite an increase in cash flow, SOUTHWEST AIRLINES's cash flow growth rate is still lower than the industry average growth rate of 46.68%.
  • The current debt-to-equity ratio, 0.38, is low and is below the industry average, implying that there has been successful management of debt levels. Despite the fact that LUV's debt-to-equity ratio is low, the quick ratio, which is currently 0.63, displays a potential problem in covering short-term cash needs.

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