Citi cuts Southwest stock price target to $22, maintains sell rating

On Monday, Citi analysts revised their outlook on Southwest Airlines Co. (NYSE:LUV), reducing the price target to $22.00 from the previous $23.00 while keeping a Sell rating on the stock. According to InvestingPro data, 11 analysts have recently revised their earnings estimates downward, with the stock already down over 20% year-to-date. The adjustment comes amid concerns regarding the competitive disadvantages facing discount airlines compared to their network counterparts, which enjoy benefits from international routes and loyalty programs.

Analysts at Citi noted that network airlines have a stronger position due to their international long-haul capabilities and robust co-branded card and loyalty verticals, which help to counterbalance any domestic weaknesses. In contrast, discount carriers like Southwest lack such compensatory factors. Southwest, which currently generates $27.6 billion in annual revenue and maintains a Fair financial health score according to InvestingPro, is also dealing with potential customer attrition risks as it shifts away from long-standing policies that included open seating, no checked bag fees, and no expiration on loyalty points.

The Citi analysts highlighted that despite these challenges, the market consensus from Marketwatch still places Southwest’s projected 2025 earnings P/E ratio at 20 times, which is significantly higher than the ratios for competitors such as Delta Air Lines Inc (NYSE:DAL). (7.7 times), United Airlines Holdings (NASDAQ:UAL) Inc. (5.2 times), and American Airlines Group (NASDAQ:AAL) Inc. (4 times).

The analysis by Citi underscores the headwinds faced by Southwest, suggesting that the airline’s traditional advantages may not be sufficient to sustain its current market valuation. The firm’s Sell rating on Southwest stock remains unchanged following the price target adjustment.

In other recent news, Southwest Airlines reported its first-quarter 2025 earnings, surpassing analysts’ expectations. The airline achieved an earnings per share (EPS) of -$0.13, which was better than the forecast of -$0.17. Revenue for the quarter reached $6.43 billion, slightly exceeding the anticipated $6.42 billion. Despite industry challenges, Southwest Airlines maintained strong operational performance with a 98.6% completion factor. The company has suspended its full-year 2025 and 2026 EBIT guidance but reaffirmed its initiative targets of $1.8 billion for 2025 and $4.3 billion for 2026 in incremental EBIT. Southwest Airlines also plans to reduce full-year 2025 capacity growth to approximately 1% and focus on cost discipline. CEO Bob Jordan emphasized the company’s commitment to exceptional execution and cost discipline in uncertain environments. The airline has no plans to update its previous assumption of 38 Boeing (NYSE:BA) 737 MAX 8 deliveries this year but remains optimistic about Boeing’s ability to meet delivery targets.

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