Southwest Airlines (LUV) stock jumped more than 7% out of the gate Monday. The upside comes after The Wall Street Journal on Sunday reported that activist investor Elliott Investment Management has built a stake worth nearly $2 billion in the air carrier.
Elliott plans to engage with the management team at Southwest and push for changes to reverse the airline's recent underperformance, the WSJ said.
Southwest has faced a myriad of issues in recent years, including a major operational failure during the 2022 Christmas and New Year holidays that led to the cancellation of nearly 17,000 flights and left more than 2 million travelers stranded. The company was fined $140 million for these failures and had to pay more than $600 million in refunds and reimbursements to travelers, as Kiplinger previously reported.
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More recently, Southwest announced on its first-quarter conference call in April that it was eliminating service in four cities and restructuring several other stations, including reducing flights in Atlanta International Airport and Chicago O'Hare International Airport, to "optimize" its network.
Southwest's stock is down about 6% over the last year, compared with gains of over 26% for Delta Air Lines (DAL) – one of Kiplinger's best stocks to buy – and about 4% for United Airlines (UAL).
Southwest stock has a market capitalization of approximately $17.7 billion at the time of this writing, so Elliott's estimated $2 billion stake would be roughly 11.3% of the company. This makes it one of LUV's largest stakeholders, alongside The Vanguard Group.
Is Southwest stock a buy, sell or hold?
Analysts are on the sidelines when it comes to the underperforming industrial stock. According to S&P Global Market Intelligence, the average analyst target price for LUV stock is $26.96, roughly 10% below current levels. Additionally, the consensus recommendation is Hold.
Financial services firm Argus Research recently downgraded LUV stock to Hold from Buy, citing issues that Elliott may very well be focused on fixing.
"With employee costs high and aircraft deliveries delayed, the road to recovery is likely to take longer than anticipated," wrote Argus Research analyst John Staszak in a May 28 note. "Southwest will also require time to accelerate revenue growth and improve its network."
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