Is Southwest Now the Best Airline for Investors?

June 17, 2014 by Jon C. Ogg

Southwest_At_BurbankSouthwest Airlines Co. (NYSE: LUV) is now the best airline for investors. At least that is the take from Stifel after the firm upgraded the stock of the super-regional airline to Buy from Hold. The upgrade was mentioned in our top analyst upgrades and downgrades on Tuesday morning, and here we expand on that brief summary.

The firm’s Joe DeNardi suggests that the recent pullback in airline stocks has brought an attractive entry point. He also believes that the focus will move away from Iraq-related woes and Lufthansa to what is almost certain to be strong airline performance metrics ahead.

A big boost is Southwest’s predominant focus on domestic efforts and a strong pricing environment. The company also has no direct exposure to overseas market fluctuations and uncertainty.

Along with the Buy rating, Southwest’s price target was raised to $30, after the stock closed at $26.10 on Monday. The valuation is based on 15 times the firm’s expected 2015 earnings per share. This is not dirt cheap compared to peers, but the reality is that airlines now trade with higher earnings multiples since the government has decided to let them merge their way into becoming mini-monopolies and duopolies in many of the markets that each carrier dominates.

ALSO READ: Three Analyst Stocks Projected to Double, or More

Southwest shares were up almost 1.5% at $26.45 in midday trading Tuesday. Its stock has traded in a range of $12.58 to $27.70 in the past 52-weeks, and the consensus analyst price target is almost $28 now. Thomson Reuters currently shows the highest analyst price target as $34.

Sponsored: Want to Retire Early? Here’s a Great First Step

Want retirement to come a few years earlier than you’d planned? Or are you ready to retire now, but want an extra set of eyes on your finances?

Now you can speak with up to 3 financial experts in your area for FREE. By simply clicking here you can begin to match with financial professionals who can help you build your plan to retire early. And the best part? The first conversation with them is free.

Click here to match with up to 3 financial pros who would be excited to help you make financial decisions.