Opinions
Jim Cramer - Mad Money
Southwest Airlines
LUV-N
COMMENT
Apr 24, 2023
Stock price when the opinion was issued
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As travel demand recovers LUV could make a nice comeback if revenue continues to recover and pass the pre-pandemic level. LUV has a reputation as one of the low-cost operators in the airline industry. If management executes well, the shares could experience decent upside potential. That said, LUV could be okay as a turnaround/recovery play (the timing would be uncertain). However, the airline business overall had a bad reputation for investors’ capital. Historically, the industry had witnessed many companies that went through boom and bust cycles, went through bankruptcy and recovered again and again. We are not fans of the industry, but would consider LUV one of the better stocks. Short term momentum is solid and the dividend is decent while one holds the stock. If exposure is already there, however, we would not add.
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Activist Elliott Management just took a big stake in this. Shares have fallen 50% in the past 3 years, and even lower than in March 2020 during the depths of the Covid shutdown. Elliott is a smart outfit and he agrees with their detailed assessment. LUV's underperformance is stunning during a travel boom and management's lack of action is off--they seem oblivious. Their had a bad Q1, and yet the CEO said they had a good quarter, despite the financial results. Really?? He agrees LUV needs a board anad management shake up and thorough review. Given Elliott, this is a buy.
Sure, there's a travel boom, but the airlines haven't fully benefit due to major unreliability problems. For example, LUV cancelled 16,000 flights over the holidays last year due to bad weather and technical issues. Just last week, technical problems led to nationwide delays. Pity, because LUV has long held a good reputation, and he likes Southwest.