- Goldman Sachs upgraded Southwest Airlines shares to "buy" from "sell" on Friday and bumped its price target to $47 from $35.
- The new level implies a 47% leap from
Southwest 's Friday closing price over the next 12 months. - The bank's analysts pushed their forecast for a full airline-industry recovery to 2023 from 2022, citing weak demand and a slowdown in international travel.
- Southwest is best prepared to ride out the downturn thanks to its domestic focus and strong balance sheet, Goldman said.
- Watch Southwest trade live here.
US airlines are poised for a slower-than-expected return to 2019 activity, and certain businesses are far better prepared for the slowdown, Goldman Sachs said Friday.
The bank pushed its forecast for a complete airline-industry rebound to 2023 from 2022, citing weakened demand and significant damage to the international travel market. Airlines with more exposure to global travel will see a slower revenue bounce-back, whereas domestic-focused firms will broadly outperform.
Southwest Airlines is one of the companies best positioned for the prolonged downturn, the team of analysts led by Catherine O'Brien wrote in a note to clients. Goldman upgraded the stock to "buy" from "sell" on Friday and boosted its price target to $47 from $35. The new level implies a 47% from Southwest's Friday closing price.
The firm's domestic network and "industry-leading" balance sheet are poised to fuel a quick rebound from coronavirus-induced lows compared to peer airlines, the team said. Though Goldman previously viewed Southwest as lacking the technology needed to outperform, it now sees the business's healthy cash flow as crucial to surviving the pandemic and its economic toll.
"Given that liquidity remains a concern for the industry, balance sheet strength is currently of even more importance than it typically is, in our view," the analysts added.
The bank's view of other airlines soured following its latest industry forecast. Allegiant shares were downgraded to "neutral" from "buy" even as its price target was boosted to $142 from $133. The airline's domestic focus and efficient fleet "will drive a faster recovery to pre-COVID-19 profitability," but current share prices don't reflect an appropriate risk/reward for a "buy" rating, Goldman said.
Of the Big 3 airlines — United, Delta, and American — United is the only to maintain its "buy" rating from the firm. The industry leaders will take a hit from their international exposure, and their ties to Boeing's troubled 737 MAX pose additional risks, Goldman said. Yet United pulled off a "competitive response to growth plans" following the coronavirus outbreak and doesn't face the same aircraft delivery and maintenance risks seen by its rivals, according to Goldman.
Southwest closed at $31.96 per share on Friday, down 41% year-to-date.
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