Southwest's $60 Target: A Catalyst or a Trap?

The immediate catalyst is clear. On Friday, JPMorgan delivered a double upgrade, moving Southwest Airlines to Overweight from Underweight and raising its price target to $60.00 from $36.00. This is the highest target on Wall Street, and it's tied directly to a single, high-stakes event: the airline's upcoming 2026 guidance update on January 29.

The core thesis is tactical. JPMorgan sees a "meaningful probability" that Southwest will guide for $5 per share in earnings for 2026. That figure would handily dwarf the current consensus estimate of $2.98. The bank's new $60 target assumes that even if the market initially discounts the full $5 outlook-given what it calls Southwest's "somewhat checkered guidance history"-a partial embrace of a much-improved forecast, combined with static valuation multiples, could still push the stock above $50 in the short term. That's the mispricing opportunity: the stock is being priced for a typical Southwest guidance, but JPMorgan is betting on a surprise.

This is framed as a potential turning point. The upgrade places Southwest on JPMorgan's Positive Catalyst Watch ahead of the January 29 report. The mechanics hinge on that guidance surprise. If management delivers a $5 EPS guide, it would validate the bank's optimistic model and likely trigger a sharp re-rating. If not, the stock could quickly give back its recent gains. For now, the catalyst is the event itself and the high bar it sets.

The Setup: Valuation and Skepticism

The stock is positioned for a binary event. Shares trade near $44.52, just below the 52-week high of $45.02. This leaves little room for immediate upside without a catalyst. The valuation already prices in a lot of hope. With a P/E ratio of 65.41, the market is assigning a premium that assumes Southwest can deliver on its recovery story. A failed guidance surprise would likely trigger a sharp re-rating, as the high multiple has no room for error.

JPMorgan itself acknowledges the market's likely skepticism. The bank notes that Southwest's "somewhat checkered guidance history" may cause investors to not immediately embrace a guide of $5 per share. This is the core tension. The stock's current price reflects a cautious baseline, while the catalyst hinges on management breaking that pattern. The setup is clear: the stock needs a credible, high-conviction guide to justify its valuation, but the market's ingrained doubt is a significant headwind.

The risk/reward is defined by that January 29 date. If the guide is strong, the stock could pop above $50 on partial acceptance, with the $60 target as a potential ceiling. If it's tepid, the high P/E becomes a liability, and shares could quickly retreat toward the $42-$43 range seen earlier in the month. For now, the stock is a pure bet on the event.

The Path to $60: Scenarios and Risks

The entire thesis now hinges on a single date: January 29. The stock's path to $60 is a binary bet on that event. There are two clear scenarios.

The Bull Case is straightforward. If Southwest issues a 2026 earnings guidance of $5 per share, it would represent a massive beat on the current consensus of $2.98. JPMorgan's model suggests even if the market only partially accepts this guide-say, pricing in a more modest $4 EPS level-the static valuation multiples could still push shares above $50. A full embrace of the $5 guide, however, would validate the bank's optimistic model and likely trigger a sharp re-rating toward its new $60 target. The high P/E of 65.41 already prices in a strong recovery, so the stock needs this guide to justify it.

The Bear Case is equally clear. If guidance comes in below $5, it confirms the market's skepticism. The stock's high valuation leaves no margin for error. A tepid guide would likely trigger a sell-off, as the premium multiple has no room to fall without significant damage to the share price. The bank itself acknowledges this risk, noting that Southwest's "somewhat checkered guidance history" may cause investors to not immediately embrace an optimistic forecast. A failure to deliver would make that history a self-fulfilling prophecy.

The Key Watchpoint is the January 29 earnings report and guidance update. This is the sole catalyst. The stock's reaction will be binary based on that single event. For now, the setup is a pure event-driven trade. The path to $60 requires a surprise guide; any other outcome risks a swift reversal.