South Airlines Stock Plunges After Cutting Full-Year Guidance on Omicron

South Airlines shares fell over 1% on Thursday after the world’s largest low-cost carrier lowered its full-year 2022 outlook on the impact of Omicron despite a rebound in holiday travel helped the company post its first quarterly profit in two years.

The Texas-based carrier reported quarterly adjusted earnings of $0.14 per share, beating the Wall Street consensus estimates of $0.7 per share. The airline said its revenue jumped over 150% to $5.05 billion from a year ago but decreased nearly 12% compared with the same period in 2019 due to the impact of the pandemic. That too topped the market expectations of $5.01 billion.

Fourth-quarter 2021 operating revenues per available seat mile were 13.77 cents, a decrease of 3.8%, driven primarily by a passenger revenue yield decrease of 4.1% and a load factor decrease of 2.1 points, compared with the same period in 2019.

The Omicron coronavirus variant is depressing revenue once again and driving up costs for South Airlines in the current quarter through March. However, the company expects to be profitable for the remaining three quarters of 2022 as well as for the entire year, Reuters reported.

Southwest Airlines stock fell over 1% to $43.23 on Thursday. The stock rose over 2% so far this year after falling over 8% in 2021.

Analyst Comments

“Southwest Airlines (LUV) reported adj 4Q21 EPS of $0.14 in line with our estimate. There were several positive takeaways in the quarter, but omicron in late December / early January impacted results and losses are expected for January and February. Fuel hedging helped in the quarter. The month of March should be profitable; the June quarter should be a return to profitability,” noted Helane Becker, equity analyst at Cowen.

“The shares of Southwest Airlines are likely to reflect 1Q22 guidance where management forecasts revenue to decline by 10% to 15% from 2019 levels. Southwest reduced 1Q22 capacity by 9% when compared to 1Q19 to reflect January flight cancellations related to omicron and the likely recovery during the quarter. The load factor is forecast to be 75% to 80%. Capacity was previously forecast to be down 6% v 1Q19.”

Southwest Airlines Stock Price Forecast

Fourteen analysts who offered stock ratings for Southwest Airlines in the last three months forecast the average price in 12 months of $54.54 with a high forecast of $65.00 and a low forecast of $36.00.

The average price target represents a 24.78% change from the last price of $43.71. Of those 14 analysts, eight rated “Buy”, five rated “Hold” while one rated “Sell”, according to Tipranks.

Morgan Stanley gave the base target price of $65 with a high of $100 under a bull scenario and $35 under the worst-case scenario. The investment bank gave an “Overweight” rating on the airline’s stock.

“Why Overweight? Southwest Airlines (LUV) is arguably the highest quality airline in the US with a good balance sheet and high margins. As a largely US domestic medium-haul airline, we believe its network is in a sweet spot for a COVID rebound and it has one of the attractive loyalty programs with a loyal customer base,” noted Ravi Shanker, equity analyst at Morgan Stanley.

“All of these not only make Southwest Airlines (LUV) a strong defensive airline but it also has the ability to play offence with the MAX rollout, corporate/GDS integration and growth opportunities.”

Several other analysts have also updated their stock outlook. Berenberg cut the target price to $62 from $70. Barclays lowered the target price to $59 from $65. BofA Global Research slashed the price objective to $55 from $61. Bernstein cut the target price to $60 from $65.

Technical analysis suggests it is good to sell as 100-day Moving Average and 100-200-day MACD Oscillator signals a strong selling opportunity.

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