Southwest Airlines Co. (LUV Quick QuoteLUV ) received encouraging news on the labor front when it inked a tentative deal with International Association of Machinists and Aerospace Workers (“IAM”) to reward more than 5000 customer service employees. This provisional agreement with IAM, reached after long-standing negotiations, is related to increase in wages and other benefits for the above employees. IAM chief of staff, Richard Johnsen, stated, “The IAM negotiating committee deserves the credit for fighting to ensure our members at Southwest Airlines receive the wages and benefits they bargained for at the negotiating table”
However, there is still some way to go before the new contract becomes effective. We note that tentative agreements do not necessarily mean that the deal will be operational. The provisional deal inked by Southwest Airlines will be voted upon by union members. It will be effective only if the voting result is favorable. The IAM negotiating committee is working diligently to finalize the tentative agreement.
We observe that shares of Southwest Airlines have outperformed the industry in a year’s time. The stock has rallied 28.3% compared with the industry’s 22.5% growth.
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We expect the provisional deal, on successful ratification, to boost the stock further. Naturally, we expect investors to keenly await further updates on this issue.
Zacks Rank & Stocks to Consider
Southwest Airlines currently carries a Zacks Rank #3 (Hold).
Some better-ranked stocks in the broader Zacks Transportation sector are Knight-Swift Transportation Holdings Inc. (KNX Quick QuoteKNX ) , Landstar System, Inc. (LSTR Quick QuoteLSTR ) and Herc Holdings Inc. (HRI Quick QuoteHRI ) . Knight-Swift and Landstar carry a Zacks Rank #2 (Buy), while Herc Holdings sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Long-term expected earnings per share (three to five years) growth rate for Knight-Swift, Landstar and Herc Holdings is pegged at 15%, 12% and 49.2%, respectively.