The firm’s Joe DeNardi suggests that the recent pullback in airline stocks has brought an attractive entry point. He also believes that the focus will move away from Iraq-related woes and Lufthansa to what is almost certain to be strong airline performance metrics ahead.
A big boost is Southwest’s predominant focus on domestic efforts and a strong pricing environment. The company also has no direct exposure to overseas market fluctuations and uncertainty.
Along with the Buy rating, Southwest’s price target was raised to $30, after the stock closed at $26.10 on Monday. The valuation is based on 15 times the firm’s expected 2015 earnings per share. This is not dirt cheap compared to peers, but the reality is that airlines now trade with higher earnings multiples since the government has decided to let them merge their way into becoming mini-monopolies and duopolies in many of the markets that each carrier dominates.
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Southwest shares were up almost 1.5% at $26.45 in midday trading Tuesday. Its stock has traded in a range of $12.58 to $27.70 in the past 52-weeks, and the consensus analyst price target is almost $28 now. Thomson Reuters currently shows the highest analyst price target as $34.
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