Sound Shore Fund, Inc. on Southwest Airlines Co.
Thesis
Southwest is implementing a set of commercial changes after a difficult five-year industry environment, including increased legroom, preferred seating, and charging for checked bags. Sound Shore believes these initiatives should allow the airline to price its product more effectively and restore returns toward historical standards. With estimated earnings power of $6 or more per share, the fund continues to view the stock as a compelling portfolio holding.
“With an estimated earnings power of $6 or more per share, we believe this investment maintains a compelling position in the portfolio.”
Key risks
- Execution risk around the margin-improvement initiatives
- Airline-industry cyclicality and demand volatility