I can’t remember this happening to us in recent memory. Even in bad times we were downgraded to a ‘hold’ as we were considered best-of-breed.

I realize Goldman is citing runaway inflationary pressures, but there is a lot of smoke at SWA for their being no fire.

https://apple.news/AkiZkTWa0SEeWrZUU2XbppQ

 

At the risk of spoiling a good headline with details, the following excerpts from the article ...

"Southwest (LUV) is seen underperforming peers due to the planned investments in technology upgrades, entrance into global distribution systems and expansion to higher-cost airports."

- Aren't these the areas that folks on this forum have complained about before - so isn't is appropriate that SWA is investing in these areas (particularly technology)?

"We continue to view Southwest as one of the highest quality companies in our coverage and believe that these investments will ultimately improve the company’s margin profile in the long run."

- So in the short term, SWA is investing to improve itself, and those costs will result in lower profits or some loss. But in the longer term, the investments should pay off for better returns.
Isn't this how business is done?

Of course a weaker balance sheet does provide fodder for the inevitable "no money for pay increases" part of the contract negotiations - but what's new.

 

I think the downgrade makes sense depending on what kind of investor you are, especially if you take the hip buzzword of 2021 (inflation) with a grain of salt.

Basically, SWA plans on a much higher than normal capex outlay over the next few years investing in needed infrastructure improvements. These infrastructure improvements will take money away from short term investor perks like buy backs and may reduce (not eliminate) short term profit potential. Further compounding the offset profits is the fact that airlines are by their nature more susceptible to inflationary pressures, as much of their revenue is collected well before the resulting product delivery.

That being said they still have confidence in SWAs long term potential and viability, they're just telling the short term vultures that they may not get as high of an ROIC as they might from another company at this time.

Don't know if I'm right, but sounds plausible enough to me.

 

Glad improvements are coming.

 

I guess it tell you how the investors feel about the current leadership at the company . Not surprising when you have a CEO that hates pilots.

 

Goldman just trying to add to their position (or start a new one) at a lower price.

Don't really trust those Goldman ANAL-ysts.

 

What, you think investors don’t hate pilots, too?

 

I am guessing you do not know the things our CEO has said and called the pilot group .

 

Can’t properly lead a cult if you don’t detest your loyal subjects.

 

All of these passenger airlines are junk. Most are losing money and trading at multiples that would imply great profits. 1Q eps. about -$1.70/share, 2Q eps. about -$.40/share, 3Q eps. about -$.30 eps. 4Q maybe $.20 eps. For the year maybe a -$2.20/share loss. That should be a "pink sheet" company. Even if 2022 is a $1.30 eps, using the most generous multiple of 20, it's a stock maybe worth $26/share. Pay premium for these companies at your own risk. Nothing wrong with trading them though.