Southwest (LUV) Stock Viewed as 'Cheap', JPMorgan Upgrades to Overweight

(Updated - July 30, 2015 10:00 AM EDT)

JPMorgan upgraded Southwest (NYSE: LUV) from Neutral to Overweight with a price target of $50.00 (from $42.50). Analyst Jamie Baker said the stock "looks cheap," and called Southwest's valuation the "stuff opportunities are made of."

"Earnings season provided a mixed bag for investors, with evidence of continued supply discipline tempered by the lack of any RASM improvement. Nonetheless, sentiment appears to be improving from the dead calm we observed in June, with DAL and UAL having successfully clawed back most of what was lost following “Black Wednesday” (May 20th). But AAL and LUV have lagged the recent recovery, and in LUV’s case consensus has barely budged. In conjunction with a 10x P/E that rarely has stayed that low for long, our equity rating on LUV is lifted from Neutral to Overweight," said Baker.

"Shares are 13.5% below the eve of “Black Wednesday”, with only AAL faring worse (-15% vs. S&P 500 -1%). LUV’s forward multiple is hovering around 10x, a level at which it rarely has remained for long, having de-rated by 26% since the start of the year. Valuation has actually moved below that of JetBlue, which is also uncommon. This is the stuff opportunities are made of, in our view. A strengthened 2016 outlook lifts our PT to $50, and raises our equity rating from Neutral to Overweight," added the analyst.

For an analyst ratings summary and ratings history on Southwest click here. For more ratings news on Southwest click here.

Shares of Southwest closed at $35.52 yesterday.

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