Goldman Sachs Upgrades Southwest Airlines

Southwest Airlines Co. was breaking out on Monday after receiving an upgrade from Goldman Sachs.

Goldman Sachs analyst Catherine O’Brien raised her rating on the airline from “sell” to “buy” and increased her price target to $47, a 45% increase compared to this past Friday’s closing price of $35.

The analyst cited an improving outlook for the long-term demand for air travel and said that while current traffic trends are below her previous forecasts, she believes Southwest’s mostly domestic network and relatively strong balance sheet will drive a “faster recovery post-COVID-19” in profitability relative to the airline industry over the longer term.

“We now expect traffic for the carriers in our coverage universe to recover to 2019 levels in 2023 as opposed to 2022,” she said. “However, while we are taking the view that demand recovery will be slower than we were previously expecting, we continue to believe that demand for air travel will return to pre-Covid-19 levels and ultimately continue to grow from there.”

According to O’Brien, her previous bearish view was based on Southwest’s need to invest in technology over several years, which was expected to put pressure on margins.

O’Brien doesn’t believe that the financial performance of the U.S. airlines through “the unprecedented demand downtown following the outbreak of Covid-19 disproves the industry will continue to be more profitable than it has been been over its longer history.”

Disclaimer: We have no position in Southwest Airlines Co. (NYSE: LUV) and have not been compensated for this article.