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Southwest Airlines Awaiting Pilot Vote: Buy Now or Wait?

On Sep 23, 2015, we issued an updated research report on the Dallas, TX-based low-cost carrier Southwest Airlines Co.LUV .

The carrier has been grabbing headlines lately primarily due to labor issues with its pilots scheduled to vote next month on a tentative deal pertaining to their pay, retirement benefits as well as provisions to improve working conditions. Last week, the directors of the Southwest Airlines Pilots' Association decided that the pilots themselves will take the final call on their future pay.

A positive vote from the pilots would mean a happy ending to the negotiations which started more than three years ago. Moreover, the contract, if accepted by the pilots, will be amendable Apr 1, 2019, and ensure that their wages are in line with that of pilots at other major carriers.

The ratification voting procedure is scheduled to commence in October and close a month later. We expect investor focus to remain on the stance taken by the pilots on this issue. Moreover, we believe that shares of the carrier will remain range bound until the outcome of the pilot vote is revealed.

The Zacks Rank #3 (Hold) carried by Southwest Airlines also doesn't suggest outperformance; rather it is an indicator that the stock will perform in line with the broader market over the next 1-3 months. Earnings per share estimate for the current quarter has remained static at 92 cents over the last 7 days and has moved up by only a cent to $3.46 for the current year over the same time period. The lack of significant earnings estimate revisions further validate the rank carried by Southwest Airlines.

In view of the above scenario, we believe that investors should wait for a better entry point as far as Southwest Airlines is concerned.

Key Picks in the Sector

While we expect limited upside potential at Southwest Airlines currently, there are some gems which investors should consider adding to their respective portfolio for higher returns. JetBlue Airways Corporation JBLU , SkyWest, Inc. SKYW and Virgin America VA represent significant upside potential. The Zacks Rank #1 (Strong Buy) carried by each of these stocks justifies our bullish stance on them.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days . Click to get this free report >>

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

SOUTHWEST AIR (LUV): Free Stock Analysis Report

JETBLUE AIRWAYS (JBLU): Free Stock Analysis Report

SKYWEST INC (SKYW): Free Stock Analysis Report

VIRGIN AMERICA (VA): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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