Citi downgraded LUV to "sell" and reduced its price target to $29.50
Southwest Airlines (LUV) is lower in premarket trading, after Citi downgraded the stock to "sell" from "neutral," and cut its price target to $29.50 from $31.50. The analyst in coverage cited valuation concerns and weakening earnings quality, while citing the budget airline's deteriorating free cash flow and shrinking pre-tax margins as making Southwest less competitive to sector peers like Delta Air lines (DAL) and United Airlines (UAL).
LUV, like most of Wall Street, has yet to get off the ground in 2025. The stock still holds a 14% year-over-year gain, with $32 area acting as support and the 80-day moving average helping to contain further losses.
Covering analysts were already overwhelmingly bearish on Southwest Airlines stock, but a shift in sentiment in the options pits could create headwinds. The equity's 50-day call/put volume ratio of 3.62 at the Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) ranks higher than 92% of readings from the past 12 months, suggesting calls are running at a higher-than-usual clip.
Options look to be an attractive route to go when weighing in on the stock. LUV'S Schaeffer's Volatility Index (SVI) of 36% ranks in the relatively low 31st percentile of the last 12 months. What's more, the security's Schaeffer's Volatility Scorecard (SVS) sits at a low 17 out of 100, making it a prime premium-selling candidate.