Deutsche Bank Upgrades Southwest Airlines Stock (LUV) on “Meaningful” Growth Potential

On Thursday, Deutsche Bank upgraded Southwest Airlines (LUV) stock from Hold to Buy and increased the price target from $28 to $40, citing three key drivers, including the potential to deliver “meaningful” revenue and EBIT (earnings before interest and tax) growth over the next 12 to 24 months.

Deutsche Bank Turns Bullish on Southwest Airlines

Deutsche Bank analyst Michael Linenberg turned bullish on Southwest stock based on three key drivers. Firstly, the 4-star analyst believes that the airlines’ revamped board of directors, along with activist investor Elliott Management, has “ushered in a new era of change” at the company, which is expected to drive higher shareholder returns.

Secondly, Linenberg expects Southwest’s current strategic initiatives to drive significant revenue and EBIT growth over the next 1-2 years. Further, he expects Southwest’s return on invested capital (ROIC) to improve significantly over the next two years.

Ahead of Deutsche Bank, Jefferies analyst Sheila Kahyaoglu upgraded LUV stock to Hold from Sell and raised the price target to $33 from $24 following meetings with management. The 5-star analyst noted the company’s initiatives, including its focus on new distribution channels and exit from underperforming cities.

In April, Southwest delivered better-than-expected first-quarter results, but pulled its full-year guidance due to macro uncertainties. The carrier has been making some drastic changes to its business model to boost its revenue and profitability. Most recently, Southwest announced that it will be charging travelers to check their luggage, ending its policy of allowing them to check two bags for free.

Is LUV Stock a Buy, Sell, or Hold?

Amid concerns about a slowdown in travel demand due to macro pressures, Wall Street has a Hold consensus rating on Southwest Airlines based on five Buys, seven Holds, and four Sells. The average LUV stock price target of $30.80 implies about a 9% downside risk from current levels.

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