Zacks Investment Research downgraded shares of Southwest Airlines Co. (LUV) from OUTPERFORM to NEUTRAL on August 16, 2012, with a target price of $9.50.
We are downgrading our long-term recommendation on Southwest Airlines to Neutral from Outperform as the positive impact of falling fuel prices has largely been priced in the stock. Although the company reported impressive earnings in the second quarter, outpacing the Zacks Consensus Estimate and the year-ago earnings, the volatility in fuel prices, high maintenance costs associated with the fleet modernization program and the ongoing market turmoil are keeping the prices of Southwest at check. However, we are encouraged by the company's cost-cutting measures, fleet rightsizing, Evolve retrofit program, steady capacity growth, All-New Rapid Rewards and several ancillary revenues. The AirTran merger is also providing additional synergies.
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