Southwest Raised at Credit Suisse After Muted Share Gains

(Bloomberg) -- The sharp rally in U.S. airline stocks from mid-March lows pushed one analyst to upgrade the worst-performing member of the bunch: Southwest Airlines Co.

Credit Suisse boosted Southwest to a buy-equivalent rating from hold on the premise that it’s among the best-positioned to stage what analyst Jose Caiado De Sousa characterized as an “aggressive comeback.” Meanwhile, ratings were cut for Spirit Airlines Inc. and United Airlines Holdings Inc., which have both outperformed the sector and Southwest recently.

Since March 19, Southwest has risen by about 17%, lagging behind the S&P 500 Airlines industry index’s 39% climb, Spirit’s more than 100% gain, and United’s 78% advance. Credit Suisse’s bullishness on Southwest follows recent price target hikes from analysts at Bank of America and an upgrade at UBS two weeks ago.

Southwest is the favored play for near-term recovery in leisure travel, according to Caiado. It also boasts a clean balance sheet with ample cash after tapping capital markets recently. He boosted his price target on the stock to $45 from $35.

At the same time, Caiado cut his rating on Spirit and United by one notch, pushing them to an underperform and neutral, respectively.

Spirit faces “fierce competition” as it competes with other airlines that previously focused on higher-yield corporate travel, which has yet to return, Caiado said. United Airlines offers a more balanced risk-reward profile, but its shares briefly overshot Caido’s price target last week on the sector rally.

Airline stocks were broadly higher Friday as the market rebounded from the biggest rout in 12 weeks. Southwest rose as much as 13%, its biggest gain since May 26.

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