Barclays Maintains an 'Equalweight' on Southwest (LUV); AirTran Offers Opportunity, but with Challenges
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Barclays maintains an 'Equalweight' on Southwest (NYSE: LUV), PT $16.
Barclays analyst says, "With this note, we roll out pro forma estimates and examine the opportunities and challenges in the AirTran (NYSE: AAI) integration. While we see opportunity for Southwest in this venture, we also see considerable risks. The shares remain inexpensive in historical context, but we do not expect this transaction to act as a catalyst." (Barclays lowers FY11 EPS estimate from $0.57 to $0.54 and FY12 from $0.89 to $0.85)
"Likely to be dilutive at first: Given our expectations for a loss at AirTran, we believe the transaction will dilute Southwest earnings per share in 2011. While Southwest could generate synergy with AirTran longer term, synergy opportunities will carry risks."
"Growth potential in Atlanta, but Atlanta highly competitive: Based on activity levels AirTran has sustained in Atlanta over time, we believe Southwest could add as much as 25% to existing AirTran capacity and as much as 5% capacity to the city. However, investors should recall that AirTran has already substantially penetrated Atlanta; we maintain that Atlanta is one of the most competitive markets in the country right now."
For more ratings news on Southwest click here and for the rating history of Southwest click here.
Shares of Southwest closed at $12.10 yesterday, with a 52 week range of $10.42-$14.32.
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Barclays analyst says, "With this note, we roll out pro forma estimates and examine the opportunities and challenges in the AirTran (NYSE: AAI) integration. While we see opportunity for Southwest in this venture, we also see considerable risks. The shares remain inexpensive in historical context, but we do not expect this transaction to act as a catalyst." (Barclays lowers FY11 EPS estimate from $0.57 to $0.54 and FY12 from $0.89 to $0.85)
"Likely to be dilutive at first: Given our expectations for a loss at AirTran, we believe the transaction will dilute Southwest earnings per share in 2011. While Southwest could generate synergy with AirTran longer term, synergy opportunities will carry risks."
"Growth potential in Atlanta, but Atlanta highly competitive: Based on activity levels AirTran has sustained in Atlanta over time, we believe Southwest could add as much as 25% to existing AirTran capacity and as much as 5% capacity to the city. However, investors should recall that AirTran has already substantially penetrated Atlanta; we maintain that Atlanta is one of the most competitive markets in the country right now."
For more ratings news on Southwest click here and for the rating history of Southwest click here.
Shares of Southwest closed at $12.10 yesterday, with a 52 week range of $10.42-$14.32.
Discover Wall Street's best ratings calls with the pros - Ratings Insider Elite. Free Trial!
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