Southwest Airlines’s new itinerary to Hawaii may prove profitable in the long run, but the service should pressure profits in the near term, according to Goldman Sachs.
Goldman analyst Catherine O’Brien downplayed the stock to a sell rating from a neutral rating and lowered her fiscal 2019 earnings per share estimate to $4.45 from $4.70. The brokerage also cut its 12-month amount target to $54 from $66 due to the reduced profit forecast; the stock closed at $57.67 on Tuesday.
Southwest pieces skidded 6 percent in early trading Wednesday.
Though the analyst remains positive on the airline in the long term, those investors looking for a savvy supply investment in the next year may be better served with other names, O’Brien told clients.
“We expect its relevant margin underperformance combined with multiple compression will translate to share price underperformance,” O’Brien disparaged. “With the delay in Southwest’s ability to announce its Hawaii flights and begin selling tickets, we think the shortened blow the whistle on window for its initial flights will create the need for the company to discount fares more heavily than we initially contemplated.”
Southwest completed its first trip to Hawaii earlier this month as federal safety inspectors oversaw the house’s maiden voyage to the islands. The low-cost airline first announced plans to offer service to Hawaii in 2017 and shortages regulators to attest to its ability to operate the flights safely.
The 35-day partial government shutdown, which ended new last month, stalled the launch of new jets and routes, including Southwest’s long-awaited service to Hawaii.
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