Southwest Airlines "disappointed" by Boeing, analyst says

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Southwest Airlines

stock is trading Tuesday, following a downgrade of Evercore ISIregrets that the company is "a growing airline that has invested for growth, but can not grow".

The story back. The southwestern stock (ticker: LUV) is up 8.5% since the beginning of the year, but has fallen nearly 5% in the last 12 months. The airlines generally had a fairly mixed performance in 2019: although no major player was able to keep up with the market, its lag was also variable, partly because of its exposure to
Boeing
of the
(BA) MAX 737. This is not surprising, given that the crash of Ethiopian Airlines in March has been out of service for months, which has seriously disrupted airlines such as Southwest, whose fleet depends enormously. Southwest has held up better than some, but still feels the effects. This has left the stock with a gain since the beginning of the year, despite rising dividends and rumors Warren Buffett could be interested in buying the company.

What's up. Tuesday, Evercore analyst Duane Pfennigwerth Southwest downgraded to In Line from Outperform, with a target price of $ 60, and removed shares from the company's list of best ideas. He writes that the move comes as Southwest has been "let down by his key partner," leaving them "probably tied" in the near future. "Southwest is not just any Boeing customer. By leveraging the MAX as a long-term growth platform, Southwest has effectively validated the technology, supporting Boeing's global sales efforts. "However, the only thing that he receives in return," he writes, "is an operational problem. Description of the business in 2019, loss of market share and likely impact on its brand, otherwise very good. listed.

He notes that, although Southwest has invested in growth, hope evaporates with Max's grounding, the departure of the company constitutes a "holding model" that may also affect his actions.

Look to the front. Pfennigwerth does not believe in Southwestern history. He still likes the company's significant free cash flow, its flawless balance sheet and its shareholder-friendly policies. Yet, he does not see the stock go anywhere before the Max 737 is back in the air.

On a positive note, this robust balance sheet is certainly useful. Among the historical carriers,
Delta Airlines

(DAL) could actually benefit from the Boeing debacle, as its fleet is relatively isolated and its actions reflect this optimism. Contrast this with
United Continental Holdings

(UAL) and
American Airlines Group

(AAL), which have just under 2% of their available seats-seats: the first is only 4.5% this year, while the last dropped by 11%, partly because of profits and forecasts, but also because the American is working a heavy debt that makes him less flexible than his peers. The fact that Southwest operates close to 9% of its capacity on the 737 MAX and has managed to maintain gains in 2019 suggests the headwinds, including its cash position and sound management.

However, the timing is not very promising either for Southwest, as 2019 is the year of its long-awaited entry into the Hawaiian market and comes after the government shutdown cost it millions of dollars in lost revenue. In the end, the actions will probably be boosted when the 737 MAX is finally allowed to take off; The question is how sustainable is this increase and how fast Southwest can regain its momentum, and if investors believe that its growth strategy can again recover without problem?

Southwest is down 1.6% to $ 50.36 recently

Write to Teresa Rivas at [email protected]