Analyst resets Southwest stock price target on revenue initiatives

It is the dogfight that never left the bottom.

Southwest Airlines (LUV) executives and Elliott Investment Management have been engaged in fierce battle over who should take the controls of the Dallas, Texas-based air carrier.

Related: Southwest Airlines' Succession-style boardroom battle

The hedge fund now holds 10% of Southwest Airlines' stock, crossing the brink that allows the hedge fund to call a different meeting on the carrier, Reuters reported on Sept. 2, citing an individual accustomed to the matter.

Elliott, which had taken an eleven% economic stake through derivatives, converted enough of those holdings into common shares to cross the ten% threshold.

The news comes days earlier than the two sides are scheduled to fulfill on Sept. 9 to discuss methods to resolve problems which have contributed to Southwest's stock losing roughly 1/2 its value over the past three years.

Southwest’s Investor Day is slated for Sept. 26 and 0.33-quarter results are expected to be released on Oct. 24.

The airline, which has posted a series of disappointing earnings reports, said in July that it became removing its beloved 50-year-old seating policy as one amongst several steps to start up making a profit.

Elliott often is often called the commitment "too little, too late" and continued with its efforts to see out to shake up Southwest's leadership.

Southwest chairman: 'we now have got gotten got a few of one of the most effective team'

The hedge fund, one amongst of the area's most powerful activist investors with $70 billion in assets lower than management, has demanded the ouster of CEO Robert Jordan and Executive Chairman Gary Kelly. It also laid out plans to appoint 10 directors to the airline's 15-person board.

Elliott has indicated that it have the ability to take next steps, including calling a different meeting, unless the corporate is willing to discuss changes to its leadership.

Related: Analysts update Southwest Airlines stock price target on revenue plan

A special meeting, used to solicit shareholder votes on matters that will't wait until the next annual gathering, is unusual.

On July 3, Southwest adopted a so-often is often called “poison pill” shareholder rights plan that would possibly make it more hard for an investor to build up more than 12.5% of the stock.

Kelly said that in light of the prospective for Elliott to significantly enlarge its position the corporate, the board determined that adopting the plan “is prudent to fulfill its fiduciary duties to all shareholders.”

“We are confident that we now have got gotten got a few of one of the most effective strategy, a few of one of the most effective plan, and a few of one of the most effective team in place to be a hit,” he said.

Jordan, Southwest's chief executive since 2022, has said he'll now no longer resign and has signaled to personnel that he and other executives are ready to fight Elliott.

"They've now no longer shown any willingness to engage in any meaningful conversations with us," Jordan said someday of the corporate's 2d-quarter earnings call on July 25.

"Most of that has been public personal attacks on leadership inside of the Board," he added "So like all shareholder, we love to engage and hear their feedback, but thus a prolonged way, there's been no willingness on their part to are trying this."

At some stage within the quarter, earnings dropped more than Forty six% to $367 million, or fifty eight cents per share, from a year ago.

Chief Financial Officer Tammy Romo told analysts that “our financial performance is now no longer reflective of what we can and deserve to deliver.”

"There are areas we deserve to give a boost to, which we are owning and addressing as a management team," she said.

Analyst cites 'new revenue initiatives'

The airline's leadership team, Jordan said, "is focused one hundred% on moving the corporate forward on the plans that – a number of which we laid out today and on transforming this company ending our desired financial returns."

He said the corporate would more about Southwest's 'ongoing strategic transformation of the business" someday of investor day, "where we can outline a comprehensive plan to deliver transformational commercial initiatives, improved operational efficiency, and capital allocation discipline."

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Elliott, which acquired bookseller Barnes & Noble in 2019, on Aug. 13 released a catalogue of 10 candidates it wants to appear as a replacement of most of the 15 on the airline's board now.

Most are former airline CEOs — including former Air Canada (ACDVF) head Robert Milton and Virgin The u.s. CEO David Cush — and other industry insiders who, the hedge fund said, will bring "relevant expertise, fresh thinking and accountability."

Southwest, in turn, said it "remain[s] open to conversations to drive Shareholder value" but stood firm within the back of current leadership as the ones who should drive the corporate forward.

Artisan Partners, whose discretionary investment management clients collectively hold more than 10.eight million shares of Southwest, or roughly 1.eight% of the corporate's outstanding shares, said the Elliot nominees “would bring a wealth of experience to the Southwest board.”

"The current Southwest board is solely now no longer a credible alternative to this slate of directors," the firm said on Aug. 15. "It is now no longer a speculative point. The current board has overseen a management team that has delivered continually deteriorating financial performance over the short, medium and long run."

Artisan urged the board to work with Elliott to right now bring on all or substantially each and each of the proposed nominees “who can then chart a new course with a new chairman and CEO.”

"Enough is enough," the firm said. "Do a few of one of the most effective thing."

Analysts at Evercore ISI weren't specializing in the boardroom air battle of their most brand new research note.

No matter each and each of the flak stemming from Elliott's efforts, the firm upgraded Southwest's stock to outperform from In Line on Sept. 3, and boosted its price target to $35, up from $30, based on The Fly.

The firm also added Southwest to Evercore ISI's "Tactical Outperform" list.

While there's not a metamorphosis to the firm's estimates on the present, the analyst believes Southwest will update current quarter trends beforehand of its investor day.

The firm pointed to the "long-awaited" transition to capacity discipline, new revenue initiatives to be outlined on Sept. 26, including assigned seating and top class economy, along with as strong underlying fleet value for its upgrade.

Related: Veteran fund manager sees world of pain coming for stocks