TD Cowen has recently upgraded Southwest Airlines to a “buy” rating from a previous “hold,” citing robust passenger demand that is positively influencing the airline’s earnings outlook. Analyst Tom Fitzgerald raised his 12-month price target for the Dallas-based carrier by 32%, increasing it from $50 to $66, which suggests a potential upside of 30% within the next year.
Notable is the dramatic rise in Southwest’s stock performance, with shares climbing 23% thus far in 2026 and an impressive 66% over the past 12 months. Fitzgerald highlighted increasing seat demand in the face of disciplined supply as a major catalyst for this growth. He noted, “The industry backdrop in 2026 is playing out largely as the bulls hoped, with broad-based demand against rational supply.”
Looking ahead, Fitzgerald anticipates that during an upcoming investment conference, Southwest’s management will likely raise their forward earnings guidance. His adjusted earnings estimates are significantly above market consensus, approximately 20% higher for 2026 and 30% higher for 2027, primarily driven by optimistic revenue projections.
Furthermore, Southwest’s management forecasts an additional $1 billion in earnings before interest and taxes (EBIT) from seating products, alongside $650 million from baggage fees and around $350 million from various cost initiatives throughout the year. Fitzgerald commented on this positive trajectory, suggesting that even a partial recovery from last year’s economic challenges, combined with the company’s initiatives, could present substantial growth opportunities.
He concluded that earnings per share (EPS) revisions are likely to be the primary influence on the airline’s stock performance, while free cash flow generation in 2027 will become a crucial focal point. If Southwest manages to achieve its target of over $1 billion in free cash flow without significant cardholder churn, investor apprehensions may diminish, creating further upside potential for the company’s stock estimates.
This optimistic outlook reflects a budding recovery in the airline industry, particularly for Southwest Airlines, as they navigate the current landscape with strategic initiatives and market resilience.