By Callum Keown

Southwest Airlines stock has failed to get off the ground this year despite the low-cost carrier's turnaround plan. J.P. Morgananalysts don't think that's going to change soon as they downgraded the stock Monday.

The stock fell more than 2% to $30.40 ahead of the open.

Analysts led by Jamie Baker said Southwest's "valuation premium can't be ignored," in a note Monday. "There's simply no other airline equity in our coverage universe that comes anywhere close."

That view stacks up. The stock currently trades at 13 times forecast 2026 earnings -- in comparison Delta Air Lines trades at 7 times 2026 EPS, American Airlines at 4.5 and United Airlines at 6.3, according to FactSet data. Other low-cost carriers are also cheaper -- Alaska Air has a forward P/E ratio of 9, while Frontier Group's is 6.8.

Southwest stock has fallen 7.6% in 2025, through Friday's close, underperforming the U.S. Global JETS exchange-traded fund's 3.6% fall.

Southwest is undergoing an ambitious turnaround plan under the watchful eye of activist investor Elliott Management. The airline reached a truce with the hedge fund in October, agreeing to appoint five of Elliott's nominees to the board. Southwest unveiled a strategy in September to cut back on less profitable routes and reduce costs amid pressure from Elliott.

The hedge fund holds a 9% stake in Southwest but an agreement struck last month allows it to hold a maximum 19.9% stake, up from a previous limit of 14.9%.

Baker said he remains convinced that Southwest's best margin days "lie in the past."

"While we're all for well-managed turnarounds, the ask at Southwest is herculean in nature, in our view," he said. "Aside from Elliott, we're hard-pressed to understand who the incremental buyer may be."

Wall Street tends to agree -- just 20% of analysts covering the stock rate it as a Buy, while 48% have Hold ratings and 32% have Sell or Underweight ratings.

Southwest did not immediately respond to a request for comment early Monday.

Write to Callum Keown at callum.keown@dowjones.com

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

March 03, 2025 08:49 ET (13:49 GMT)

Copyright (c) 2025 Dow Jones & Company, Inc.