Market's Take on Southwest Airlines Shares: Bullish or Bearish?
Southwest Airlines Underperforms Amid Market Caution
Southwest Airlines (LUV), the Dallas-based passenger airline company, reported its Q2 2025 earnings, but despite delivering a net income of $213 million and returning $1.6 billion to shareholders, the stock has underperformed the broader market and the U.S. Global Jets ETF (JETS).
In Q2 2025, Southwest's revenue was $7.24 billion, slightly missing Street forecasts, and the adjusted EPS for the quarter was $0.43, falling short of the consensus estimate by 15.7%. For the current fiscal year, ending in December, analysts expect Southwest's EPS to rise 7.3% to $1.03 on a diluted basis.
The company's cautious forward guidance for 2025 EBIT ($600 million to $800 million) and expectations for only a modest 1% increase in capacity in the second half of 2025, with a focus on cost savings through capacity reductions, have raised concerns among investors.
Investor skepticism also stems from Southwest's relatively high price/earnings (P/E) ratio of 28.17 compared to peers American Airlines (6.75) and Delta Air Lines (7.97), which may imply the stock is overvalued relative to earnings growth prospects.
Southwest's recent 21% stock price drop in less than a month reflects this investor skepticism, despite solid financial results and ongoing shareholder returns. The company's Q2 2025 earnings report showed a net income of $0.39 per diluted share, and the company returned $1.6 billion to shareholders via share repurchases and dividends.
Over the past year, Southwest has gained 14.4%, while the broader S&P 500 Index has rallied nearly 16.6%. The upside potential for Southwest Airlines, according to the Street-high price target, is 48.7%. The mean price target for LUV stock is $30.56, with Duane Pfennigwerth, an analyst from Evercore ISI, setting a price target of $40 for Southwest Airlines.
The consensus among analysts covering LUV stock is a "Hold." Kritika Sarmah, the author of this article, does not have positions in any of the securities mentioned.
On Jul. 23, LUV shares grew marginally following the release of its Q2 2025 earnings. The U.S. Global Jets ETF has gained about 25.1% over the past year, and in 2025, Southwest Airlines Co. stock is down 8%, compared to the SPX's 7.8% rise on a YTD basis.
Southwest Airlines Co. offers in-flight entertainment and connectivity services, as well as a Rapid Rewards loyalty program.
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[1] Southwest Airlines Q2 2025 Earnings Release, Southwest Airlines Investor Relations, 23 July 2025. [2] Southwest Airlines Q2 2025 Earnings Call Transcript, Seeking Alpha, 23 July 2025. [3] Southwest Airlines Analyst Ratings and Price Targets, Yahoo Finance, 23 July 2025.
In light of Southwest Airlines' (LUV) cautious outlook and higher P/E ratio compared to peers, investors are skeptical about the company's business and may choose to hold back on investing in the stock. The company's financial performance, including its net income and shareholder returns, might not be enough to overshadow the concerns about the future of the airline's finance and growth prospects.
