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.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
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."
Related Content
-
Bouncing Back: New Tunes for Millennials Trying to Make ItAdele's mournful melodies kick off this generation's financial playlist, but with the right plan, Millennials can finish strong.
-
Early-Stage Startup Deals: How Do Convertible Notes Work?Some angel investors support early startups by providing a loan in exchange for a convertible note, which includes annual interest and a maturity date.
-
Stock Market Today: Stocks Soar on China Trade Talk HopesTreasury Secretary Bessent said current U.S.-China trade relations are unsustainable and signaled hopes for negotiations.
-
How Can Investors Profit From AI's Energy Use?Global energy demand is expected to grow by leaps and bounds over the next several years as AI usage accelerates. Here's how to get a piece of the pie.
-
Can Trump Fire Powell? A Supreme Court Case Could DecidePresidential posts threaten to overwhelm decades of precedent and tradition, whatever the nine justices decide.
-
What Are AI Agents and What Can They Do for You?AI agents promise to be the next big thing in artificial intelligence, but what exactly do they do?
-
Should You Buy an iPhone Now Before Tariffs Hit?Looming tariffs can make an iPhone purchase seem urgent. Here's what to do if you need another phone but want to save money.
-
SRI Redefined: Going Beyond Socially Responsible InvestingNow that climate change has progressed to a changed climate, sustainable investing needs to evolve to address new demands of resilience and innovation.
