Zacks Investment Research downgraded shares of Southwest Airlines Co. (LUV) from NEUTRAL to UNDERPERFORM on March 29, 2012, with a target price of $7.50.
We are downgrading our recommendation on Southwest Airlines to Underperform as the company is not expected to report profits in the first quarter this year. The Company reported lower year-over-year earnings in the fourth quarter but outpaced the Zacks Consensus Estimate. Although Southwest is poised to benefit from fleet rightsizing, Evolve retrofit program, steady capacity growth, All-New Rapid Rewards, AirTran merger synergies and several ancillary revenues, fuel prices continue to drag down the profits. The entire airline industry is currently struggling with higher fuel prices and a slow moving U.S. economy. Additionally, high maintenance cost associated with the fleet modernization, new advertising rules, risk pertaining to AirTran integration, heavy investments and reliance on a single fleet keep us cautious on the stock.
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