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Southwest Airlines Expects Slower Cash Burn as Leisure Bookings and Demand Improves, Shares Gain

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Southwest Airlines, the world’s largest low-cost carrier, forecasts cash burn to be less than previously thought, primarily driven by an improvement in leisure passenger demand and bookings, sending its shares up about 2% in pre-market trading on Tuesday.

The U.S. low-cost carrier said its average core cash burn was about $15 million per day in January 2021 and forecasts average core cash burn to be nearly $15 million per day in the first quarter of 2021, down from previous guidance of about $17 million per day.

Following this, Southwest Airlines‘ shares, which slumped about 14% in 2020, had risen over 10% so far this year. The stock rose 1.29% to $52 in pre-market trading on Tuesday.

However, the company remains cautious in this uncertain demand environment and continues to plan for multiple scenarios for its fleet and capacity plans. Southwest Airlines continues to experience significant year-over-year negative impacts to passenger demand and bookings due to the COVID-19 pandemic.

Southwest Airlines Stock Price Forecast

Twelve analysts who offered stock ratings for Southwest Airlines in the last three months forecast the average price in 12 months of $56.73 with a high forecast of $65.00 and a low forecast of $50.00.

The average price target represents a 10.50% increase from the last price of $51.34. All those 12 analysts, eight rated “Buy”, three rated “Hold”, one rated “Sell”, according to Tipranks.

Morgan Stanley gave the base target price of $59 with a high of $90 under a bull scenario and 29 under the worst-case scenario. The firm gave an “Overweight” rating on the passenger airline company’s stock.

Several other analysts have also upgraded the stock outlook. Citigroup raised the price target to $51 from $50. Southwest Airlines had its price objective lifted by Credit Suisse Group to $62 from $51. They currently have an outperform rating on the airline’s stock. Cowen lifted their price target to $55 from $46 and gave the stock an outperform rating.

In addition, Sanford C. Bernstein upgraded to an outperform rating from a market perform and set a $59.00 price objective. BNP Paribas issued an outperform rating and a $55.00 target price.

Analyst Comments

“Why Overweight? Southwest Airlines (LUV) is arguably the highest quality airline in the US with a good balance sheet and high margins. As a largely US domestic medium-haul airline, we believe its network is in a sweet spot for a COVID-19 rebound and it has one of the attractive loyalty programs with a loyal customer base,” said Ravi Shanker, equity analyst at Morgan Stanley.

“All of these make LUV the most resilient at the bottom and well-positioned for a recovery, especially being able to capitalize on share gain or M&A opportunities as other Airlines falter/lag.”

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This article was originally posted on FX Empire