Core Viewpoint - Southwest Airlines Co. (NYSE:LUV) is considered one of the most undervalued travel stocks, with hedge funds showing interest in its potential for growth and recovery [1][2]. Group 1: Price Target Adjustments - Susquehanna raised the price target for Southwest Airlines Co. to $55 from $45 on February 3, maintaining a Neutral rating, citing significant progress in turnaround efforts [1]. - Citi also increased its price target for Southwest Airlines Co. to $54 from $44 while keeping a Neutral rating, expressing a "tactically bullish" outlook on the airline sector following fiscal Q4 reports [3]. Group 2: Company Progress and Strategy - The company is entering 2026 with renewed momentum, having achieved several external and international goals, including the introduction of bag fees and streamlining its corporate workforce [2]. - Southwest Airlines is also focusing on enhancing customer experience by assigning extra-legroom seating [2]. Group 3: Company Operations - Southwest Airlines operates a passenger airline and provides ancillary services such as upgraded boarding, pet transportation, and early bird check-ins [4]. - Its operations extend across the United States and several international locations, including Puerto Rico, Mexico, and the Caribbean [4].

Industry Overview - The Zacks Transportation - Airline industry is benefiting from declining fuel costs, which are a significant input cost for airlines [1][4] - Airlines are cutting capacity to address the tariff-induced decline in air travel demand, which is a shareholder-friendly approach [1][6] - The industry includes both legacy carriers and low-cost airlines, with operations supported by regional subsidiaries and third-party carriers [3] Financial Performance - The Zacks Airline industry has gained 23.7% over the past year, outperforming the S&P 500's rise of 7.7% and the broader sector's decline of 12.1% [12] - The industry's earnings estimate for 2025 has improved by 5% since September 2024, indicating positive earnings growth potential [10] Valuation Metrics - The industry has a forward 12-month price-to-sales (P/S) ratio of 1.16X, significantly lower than the S&P 500's 4.81X and the sector's 1.68X [15] Key Players - SkyWest (SKYW) has seen its stock surge 28% in the past year, with a 7.6% increase in the Zacks Consensus Estimate for 2025 earnings over the past 60 days [20] - Frontier Group (ULCC) has experienced a 42.2% increase in the Zacks Consensus Estimate for 2025 earnings, and is offering free checked bags for summer travel [23][24] - Allegiant (ALGT) has a Zacks Rank 2 (Buy) and has revised its current-year earnings estimate upward by 21.8% over the past 60 days [26]