Sky Talk

What Wall Street analysts are saying about Southwest

Since May 19, shares of Southwest Airlines have lost almost 15 percent of their value. (Star-Telegram/Joyce Marshall)
Since May 19, shares of Southwest Airlines have lost almost 15 percent of their value. (Star-Telegram/Joyce Marshall) Star-Telegram

It’s been a rough few weeks for Southwest Airlines stock.

Shares of the Dallas-based carrier have lost almost 15 percent of their value since May 19 as investors continue to be worried that the airline is adding too much capacity this year and in 2016.

On Tuesday, the stock [ticker: LUV] was down 5 percent during the trading day after Southwest released its May traffic results and said it was cutting its unit revenue estimates for the second quarter.

Here’s a sampling of what Wall Street analysts are saying about Southwest.

Hunter Keay, Wolfe Research

“The report contained a long explanation about what’s going on, which isn’t customary. LUV seems aware of investor concerns. But do they really hear them? The comment about “record” 2Q profits affirms our opinion that LUV thinks profits matter more than capacity, which we believe is not currently the case....It is encouraging to see LUV squirm, and while we view today’s announcement as inadequate to alleviate concerns and not a major change mathematically from prior guidance, it is clear that a lot of investor skepticism is largely priced into the stock.”

Jamie Baker, J.P. Morgan, discussing Southwest raising fares by $5 one-way on Monday night.

“Investors will no doubt question an increase from the nation’s largest discounter on or about the same time that it identifies weakness in close-in bookings. Frankly, we believe sloppy industry pricing (as opposed to out of control capacity) may emerge as a key contributor behind near-universal domestic weakness as of late, hence we are encouraged to see at least one airline trying to shore up revenue, even if only on a portion of its fare structure.”

Michael Derchin, CRT Capital Research

“We find it ironic that investors are punishing LUV for doing what any good management would do when the long haul restrictions at close-in Dallas Love Field were lifted; they redeployed assets to capitalize on the opportunity. Granted 7% capacity growth in '15 and 6% in '16 exceeds GDP. BUT, LUV would have been growing capacity only 1% in '15 and '16 if the Dallas long haul opportunity and slots at LGA/DCA had not come along.”

Helane Becker, Cowen and Company

“Most of Southwest's growth in 2015 is due to the expansion at Dallas-Love Field, up-gauging and new international routes. Management is now capping capacity growth at 6% in 2016 down from 6%-7% growth previously. We think 2015 will prove to be a peak year for capacity expansion. If economic conditions worsen further, we expect Southwest to further decrease capacity. Southwest is now the largest domestic carrier and must target capacity growth in line with their size.”