Southwest shares touch lows unseen since early October on Thursday, fourth-quarter earnings fall short of estimates due to rising 737 MAX costs

Southwest Airlines Co’s (LUV) fourth-quarter earnings, reported on Thursday, missed Wall Street estimates on rising Boeing 737 MAX costs. The company also warned that flight cancellations would likely be extended beyond June.

Shares of Southwest Airlines closed higher for the fifth time in the past ten trading sessions in New York on Thursday. It has also been the sharpest daily surge since October 24th. The stock went up 3.59% ($1.92) to $55.40, after touching an intraday low at $51.96, or a price level not seen since October 3rd ($51.26).

Shares of Southwest Airlines Company have risen 2.63% so far in 2020 compared with a 2.93% gain for the benchmark index, S&P 500 (SPX).

In 2019, Southwest Airlines Co’s stock went up 16.14%, thus, it again underperformed the S&P 500, which registered a 28.88% gain.

Total operating revenue went up 0.4% year-on-year to $5.7 billion during the quarter ended on December 31st, supported by sound demand for air travel.

The air carrier reported a 1.6% year-on-year drop in seat capacity in 2019 and said it expected further decrease between 1.5% and 2.5% during the upcoming quarter.

Meanwhile, net income attributable to shareholders decreased to $514 million ($0.98 per share) during the fourth quarter from $654 million ($1.17 per share) in the same period a year ago.

Southwest explained that it treated a $124 million profit-sharing payment to employees, which resulted from a partial compensation agreement with Boeing Co in December, as an operating expense.

In comparison, a consensus of estimates had pointed to earnings of $1.09 per share.

According to the company’s estimates, it has taken a $828 million hit to operating profit stemming from the Boeing 737 MAX global grounding in 2019. Southwest operated 34 MAX planes in its fleet at the time of the grounding and had dozens more on order.

The company also said it intended to take delivery of 27 MAX aircraft this year, but yet, it noted that figure could change, as it continues to plan for a number of return-to-service scenarios.

Analyst stock price forecast and recommendation

According to CNN Money, the 18 analysts, offering 12-month forecasts regarding Southwest Airlines’ stock price, have a median target of $59.50, with a high estimate of $68.00 and a low estimate of $44.00. The median estimate represents a 7.40% upside compared to the closing price of $55.40 on January 23rd.

The same media also reported that at least 16 out of 21 surveyed investment analysts had rated Southwest Airlines’ stock as “Hold”, while 3 – as “Buy”. On the other hand, 2 analysts had recommended selling the stock.

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