LUV Stock Gets A Wall Street Upgrade On Bold Business Model Shift: Retail Mood Flies Higher

Southwest Airlines has been implementing changes to its traditional model, and its assigned and extra-legroom seating went live just two days ago.

• Brokerage UBS upgraded Southwest to ‘Buy’ from ‘Neutral’ and raised its price target to $73, up from $51, according to TheFly.
• The U.S. carrier has been shifting away from its traditional model, implementing bag fees, assigning seats, and extending flight credit expiration dates to increase revenue.
• Analysts, on average, have a consensus ‘Buy’ rating, according to Koyfin, with 10 out of 25 analysts rating the stock ‘Buy’ or higher.

Southwest Airlines shares closed more than 6% higher on Tuesday as retail investor optimism climbed following a bullish upgrade from UBS, which cited the carrier's efforts to modernize its business model and drive revenue growth.

UBS upgraded the stock to 'Buy' from 'Neutral' and raised its price target to $73 from $51, according to The Fly. The new target implies roughly 35% upside from the latest closing price of $54.26.

Southwest shares are up more than 31% so far this year, supported by better-than-expected quarterly results and a stronger outlook issued in late January.

UBS Sees Upside From New Initiatives

The brokerage said it sees upside to Southwest's highlighted targets for extra-legroom and assigned-seating initiatives. UBS estimates $4.25 to $4.50 in incremental earnings per share from extra legroom, assigned seating, and checked-bag fees, assuming these initiatives reach full maturity by fiscal 2027.

The U.S. carrier has been shifting away from its traditional model, implementing bag fees, assigning seats, and extending flight credit expiration dates to increase revenue.

Analysts, on average, have a consensus ‘Buy’ rating, according to Koyfin, with 10 out of 25 analysts rating the stock ‘Buy’ or higher, 10 ‘Hold’, and five rating it ‘Sell’ or lower. The average price target on Southwest Airlines was $48.43, implying a 12% upside to Tuesday’s close.

What Is Retail Thinking?

Retail sentiment on Southwest Airlines improved to ‘bullish’ from ‘bearish’ a month ago, with message volumes at ‘high’ levels, according to data from Stocktwits. In the last 24 hours, the retail message volumes on Stocktwits jumped 220%.

Shares of Southwest Airlines have surged by over 79% in the last 12 months.

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