Southwest Airlines Co. (NYSE:LUV) Just Reported Third-Quarter Earnings: Have Analysts Changed Their Mind On The Stock?

Southwest Airlines Co. (NYSE:LUV) just released its quarterly report and things are looking bullish. Revenues and losses per share both beat expectations, with revenues of US$1.8b leading estimates by 5.1%. Statutory losses were somewhat smaller thanthe analysts expected, coming in at US$1.96 per share. Following the result, the analysts have updated their earnings model, and it would be good to know whether they think there's been a strong change in the company's prospects, or if it's business as usual. We've gathered the most recent statutory forecasts to see whether the analysts have changed their earnings models, following these results.

View our latest analysis for Southwest Airlines

Taking into account the latest results, the consensus forecast from Southwest Airlines' 17 analysts is for revenues of US$15.8b in 2021, which would reflect a major 24% improvement in sales compared to the last 12 months. Southwest Airlines is also expected to turn profitable, with statutory earnings of US$0.72 per share. Before this earnings report, the analysts had been forecasting revenues of US$15.9b and earnings per share (EPS) of US$1.39 in 2021. The analysts seem to have become more bearish following the latest results. While there were no changes to revenue forecasts, there was a large cut to EPS estimates.

The consensus price target held steady at US$46.78, with the analysts seemingly voting that their lower forecast earnings are not expected to lead to a lower stock price in the foreseeable future. There's another way to think about price targets though, and that's to look at the range of price targets put forward by analysts, because a wide range of estimates could suggest a diverse view on possible outcomes for the business. The most optimistic Southwest Airlines analyst has a price target of US$59.00 per share, while the most pessimistic values it at US$29.00. This is a fairly broad spread of estimates, suggesting that analysts are forecasting a wide range of possible outcomes for the business.

Another way we can view these estimates is in the context of the bigger picture, such as how the forecasts stack up against past performance, and whether forecasts are more or less bullish relative to other companies in the industry. For example, we noticed that Southwest Airlines' rate of growth is expected to accelerate meaningfully, with revenues forecast to grow 24%, well above its historical decline of 0.8% a year over the past five years. Compare this against analyst estimates for the wider industry, which suggest that (in aggregate) industry revenues are expected to grow 26% next year. So while Southwest Airlines' revenues are expected to improve, it seems that it is expected to grow at about the same rate as the overall industry.

The Bottom Line

The most important thing to take away is that the analysts downgraded their earnings per share estimates, showing that there has been a clear decline in sentiment following these results. They also reconfirmed their revenue estimates, with the company predicted to grow at about the same rate as the wider industry. The consensus price target held steady at US$46.78, with the latest estimates not enough to have an impact on their price targets.

With that said, the long-term trajectory of the company's earnings is a lot more important than next year. We have estimates - from multiple Southwest Airlines analysts - going out to 2024, and you can see them free on our platform here.

You should always think about risks though. Case in point, we've spotted 3 warning signs for Southwest Airlines you should be aware of, and 1 of them doesn't sit too well with us.

This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com.