Southwest, Spirit Retreat After Analysts Downgrade Shares

NEW YORK (TheStreet) -- Southwest Airlines  (LUV) and Spirit Airlines  (SAVE) are falling after both airline stocks received downgrades from research firms this morning. Barclays downgraded Southwest, while Credit Suisse cut its rating on Spirit.

WHAT'S NEW: Barclays analyst David Fintzen lowered his rating on Southwest to Underweight from Overweight, saying that the stock's valuation is above peer levels even though its outlook is no better than its large competitors. Moreover, the company's margins could drop in 2016 because of its "outsized growth," the analyst warned. Credit Suisse analyst Julie Yates downgraded Spirit Airlines to Neutral from Outperform, as she believes the airlines is facing more aggressive competitor fares. American Airlines  (AAL) is offering lower fares than Spirit on five of the latter company's ten top ten routes for travel two months from reservation dates, the analyst stated. Moreover, Spirit's second quarter margins may come in below its guidance and the airline will probably reduce its margin outlook when its reports its Q2 results in late July, Yates predicted.

WHAT'S NOTABLE: Barclays' Fintzen was more upbeat on Spirit, continuing to identify it as his top pick among airlines. More broadly, Fintzen remains generally upbeat on airline stocks, predicting that the industry's profitability will be "far more durable" than the market believes. The sector's competition is balanced, and it has increased its capacity and airplane purchases much less than in prior periods of oil price declines, according to Fintzen. Additionally, the airline stocks' multiples remain overly depressed, he believes. He says that the following stock in the sector can climb about 50%: Spirit, American, Delta  (DAL), and United  (UAL).

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