Southwest Is a Trade Now, But Soon May Be a Sound Investment

Since the start of 2021, Southwest Airlines (NYSE:LUV) stock has risen 36% as investors decide it’s safe to move into airline stocks.

Source: Felipe_Sanchez /

Southwest Airlines stock is at $63.50 with a market cap of $37.8 billion after it reported 2020 sales of $9 billion. Analysts are discounting that figure, however, looking for guidance instead at its 2019 revenues of $22.4 billion.

Shares are now trading slightly above where they were when those results were coming in. Back then Southwest also had a quarterly dividend of 18 cent per share. That dividend ended a year ago and there are as yet no indications it is coming back.

Undoing the Damage

Like the other airlines, Southwest sustained grave financial damage during the pandemic.

The company ended the year with over $11.7 billion in long-term debt. It added nearly $9 billion of it during 2020 as it fought to stay in business without passengers. But unlike rivals like American Airlines (NASDAQ:AAL) and United Airlines (NASDAQ:UAL), Southwest managed to end the year with $13.3 billion in cash, even after losing $3 billion, or $5.44 per share fully diluted, during the year.

Another loss is expected when it next reports April 29, $1.91/share on revenue of $2.2 billion, But that may be its last loss, as it is now calling back pilots and preparing for a busy summer flying season.

Credit the vaccines. The Centers for Disease Control issued new guidance that people who have been fully vaccinated are now free to move about the country. That is expected to unleash enormous pent-up demand from people who haven’t seen loved ones, or taken a real vacation, in over a year.

Management also displayed confidence in ordering 100 new Boeing (NYSE:BA) 737-MAX aircraft. The new planes will help it retire older aircraft and cut fuel costs.

The new aircraft are the smallest version of the MAX, reflecting the airline’s belief that short-haul flying will come back quickly. Its latest route expansion adds small cities like Myrtle Beach, South Carolina to the map, a total of 36 new routes. The airline is jump-starting demand with a sale that prices some tickets at $49.

How High Can LUV Stock Fly?

Analysts have been slow to move up their earnings estimates, however. Profits aren’t expected to return until the December quarter. Over at Tipranks, analysts think Southwest’s move is just about over, with a price target just 1% higher than where it now trades. Still, 14 of 16 are telling investors to buy, and the other two are on hold.

The latest moves by analysts are bullish.

While analysts at Zacks still have Southwest rated as a hold, they’re writing favorably about it. Bank of America (NYSE:BAC), which already had a buy rating on the stock, has raised its price target to $68.  Another bullish call from Morgan Stanley (NYSE:MS) raises the price target to $80. Morgan Stanley analyst Ravi Shanker likes the whole airline group, believing travel could rebound significantly above 2019 levels.

The Bottom Line

Analysts pounding the table for airline stocks is the best economic news in some time.

It not only bodes well for Southwest but for hotels, resorts and even cruise lines. The uneven distribution of vaccines, with the U.S. rapidly getting its shots, also favors domestic destinations that are Southwest’s specialty. Southwest’s relative financial strength also makes it look like the best place to speculate within the group.

That means you can probably make money buying LUV stock today. Just keep an eye on the headlines. A fourth Covid wave based on new variants, growing international tensions, or plain overexuberance could still hit the stock.

For now, it’s a trade, but LUV stock could soon once again be a sound investment.

At the date of publication, Dana Blankenhorn directly owned shares in BAC. He does not hold, directly or indirectly, positions in any other securities mentioned in this article.

Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, available at the Amazon Kindle store. Write him at, tweet him at @danablankenhorn, or subscribe to his Substack

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