Any company whose stock has seen 30% of its value shaved off so far this year, would conclude 2020’s market performance has been underwhelming. But we are talking about the airline industry here, and considering the yearly performance of some of its peers, Southwest Airlines (LUV) - whose stock boasts that alarming dip - has been holding up pretty well in the aviation industry’s annus horribilis.
Looking beyond the current climate, Tigress analyst Ivan Feinseth believes Southwest is well set up for a post-pandemic environment and expects the company to overcome near-term COVID-19 driven headwinds and initiate a rapid recovery once the pandemic is behind us.
There are several reasons why the 5-star analyst believes “LUV should recover faster than many of its industry peers.” These include its focus on mostly U.S. domestic flights, strong balance sheet, exceptional operating history, and very loyal customer base.
According to Feinseth, LUV has been seeing “a steady cadence of improving booking trends,” and for the first time since April new bookings are exceeding cancellations. As restrictions continue to lift, and the willingness to board flights becomes more widespread, booking trends will naturally continue to pick up.
Its “strong brand equity” will offer it a significant competitive advantage, claims Feinseth, being “highly regarded both in the industry and by its customers.”
What’s more, the current travel headwinds will be overcome with the help of a “strong balance sheet and operating efficiency.”
The company had $13.70 billion, or $24.32 per share, in excess cash, as of June 2020. Along with an expected reduction of Economic Operating Cash Flow of $2.56 billion, the suspension of its dividend and share repurchases, the cash should provide the company with enough liquidity to overcome the pandemic and position it to “ride the global travel recovery expected sometime late spring to early summer next year,” the analyst noted.
Summing up his bullish case for Southwest, Feinseth said, “LUV is one of the best ways to play the eventual recovery and travel. The potential for a COVID-19 vaccine by the end of this year will be a significant upside catalyst. We believe significant upside exists from current levels and continue to recommend purchase.”
Accordingly, Feinseth reiterated a Buy rating on LUV shares without suggesting a price target. (To watch Feinseth’s track record, click here)
The rest of the Street remains cautiously bullish. Based on 9 Buys and 5 Holds, the stock has a Moderate Buy consensus rating. The analysts are forecasting upside of 12.5% over the next 12 months, given the $43.60 average price target. (See LUV stock analysis on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.