Melius raises Southwest stock rating, ups target to $34

On Thursday, Melius Research analyst Conor Cunningham upgraded Southwest Airlines Co. (NYSE: NYSE:LUV) stock from "Sell" to "Hold" and increased the price target to $34.00, up from the previous $28.00. The upgrade comes as the stock has shown strong momentum, posting an 8.4% gain in the past week and a 17% return over the last six months. Cunningham noted that after three years of underperformance compared to its peers, 2025 might mark a pivotal year for Southwest as the company’s self-help initiatives begin to stabilize its performance. According to InvestingPro data, analyst targets for the stock currently range from $24 to $44, reflecting diverse views on the company’s recovery potential.

Cunningham’s revised outlook for Southwest reflects the company’s progress in addressing past challenges, including overstaffing, the absence of a cost plan, and revenue underperformance due to network issues. The airline, currently valued at nearly $20 billion, has demonstrated some positive indicators, with InvestingPro analysis showing revenue growth of 5.3% in the last twelve months and expectations for further growth this year. Significant strides have been taken towards rectifying these issues, with the potential for Southwest to achieve industry-plus unit revenue performance and better costs in the second half of 2025 and beyond.

While acknowledging risks to Southwest’s plan, Cunningham pointed out that the market has been overly discounting the airline’s comprehensive list of initiatives. Management’s plan suggests a possibility of reaching over $6 in earnings per share (EPS) by 2026 if all goes according to plan, which contrasts with the current market consensus of $2.75 and more optimistic estimates of a path to $4 EPS. This new, more balanced risk-reward profile underpins the analyst’s neutral stance on Southwest’s shares. For deeper insights into Southwest’s valuation and growth prospects, investors can access comprehensive analysis and additional ProTips through InvestingPro’s detailed research reports.

Southwest has embarked on a journey to correct its course, with management laying out a clear strategy to improve its financial metrics. The company’s efforts to streamline operations and enhance revenue performance appear to be gaining traction, potentially leading to improved cost efficiency in the latter half of 2025.

Investors and market watchers will be closely monitoring Southwest’s progress as it implements its strategic initiatives. With the updated rating and price target, Melius Research signals that Southwest may be on a more stable footing, offering a tempered outlook for the airline’s stock in the near to medium term.

In other recent news, Southwest Airlines Co. has announced adjustments to its earnings and revenue projections. The company has downgraded its unit revenue guidance for the first quarter, citing factors such as a higher-than-expected completion factor and reduced government travel. UBS analyst Thomas Wadewitz upgraded Southwest’s stock rating from Sell to Neutral, raising the price target to $36, reflecting a positive outlook on financial performance due to strategic changes. Bernstein’s SocGen Group maintained a Market Perform rating with a $33 target, noting significant operational changes, including the addition of baggage fees and basic economy fares.

Southwest has also introduced changes to its loyalty program and fee structure, effective for flights booked from May 28, 2025, aiming to enhance revenue growth. The airline will modify its baggage policy, affecting the number of free checked bags for different customer tiers. In addition, Southwest has expanded its distribution channels through a partnership with Expedia (NASDAQ:EXPE) and plans to introduce a new Basic fare category.

Furthermore, a Southwest plane narrowly avoided a collision at Chicago Midway International Airport, prompting an FAA investigation. The company emphasized the importance of safety and confirmed that the flight landed without issues. These developments are part of Southwest’s broader strategy to improve profitability and operational efficiency amidst industry challenges.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.