Southwest Airlines (LUV) stock is trading notably higher Thursday after the air carrier raised a key third-quarter revenue forecast and said its board of directors authorized a large share buyback program. LUV is also hosting an investor day today, where it is unveiling its transformation plans.
In a filing with the Securities and Exchange Commission (SEC), Southwest said it now expects revenue per available seat mile (RASM) to increase 2% to 3% in the third quarter, up from its previous estimate of flat to a decline of up to 2%.
The company noted that the improved outlook was driven by rebookings from customers impacted by the outage caused by an incident at CrowdStrike in July, as well as "improving industry demand trends."
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Additionally, Southwest announced that its board of directors authorized a new $2.5 billion share repurchase program, which represents more than 13% of its current market cap. Stock buybacks can help boost the share price.
Southwest to unveil transformation plans
Southwest is also hosting an investor day today where it is outlining its three-year plan to transform its customer experience. By improving the customer experience, the company says it will also "drive revenue growth and return the carrier to industry-leading profitability."
Among its plans to transform the customer experience, Southwest Airlines announced plans for assigned seating, premium seating, boarding with upgrades and that bags will continue to fly free.
"We've spent the past few years laying a foundation that serves as the base of our transformation," said Ryan Green, Southwest's executive vice president of commercial transformation, in a statement. "We've already started rolling out modernized cabins with improved WiFi, in-seat power, larger overhead bins, enhanced operational efficiencies, and optimized flight schedules."
The company also announced several new offerings for its customers, including global airline partnerships to expand its network, enhancements to its rewards program and a new vacation package service that will launch in 2025.
"The strategic vision announced today is designed to return us to financial prosperity and drive value creation," said Tammy Romo, chief financial officer at Southwest, in a statement.
Is LUV stock a buy, sell or hold?
It's been a turbulent stretch on the price charts for Southwest Airlines, which was flat for the year to date through the September 25 close. Unsurprisingly, analysts are on the sidelines when it comes to the industrial stock.
According to S&P Global Market Intelligence, the consensus analyst target price for LUV stock is $25.30, representing a discount of more than 19% to current levels. Additionally, the consensus recommendation is Hold.
Financial services firm Jefferies is even more skeptical of LUV stock, as evidenced by its Underperform rating (equivalent to a Sell) and $20 price target.
"Southwest is making major strategy pivots for the first time in 50 years with the introduction of assigned seating, redeye flights, and extra legroom seats, all in an effort to attract and grow its customer base," said Jefferies analyst Sheila Kahyaoglu in a September 20 note.
"Near-term challenges from the network positioning, industry oversupply, and slower-than-expected learnings on the revenue management system work against LUV in tandem with the risks posed by premium seat adoption and the incremental capital expenditures that go with it," she added.
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