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Citi turned negative on Southwest shares amid concerns over valuation and earnings quality. Analyst Stephen Trent downgraded the airline to sell from neutral and cut his price target by $2 to $29.50. Trent’s new price target suggests shares can fall 10.1% from Wednesday’s close. Trent said Southwest’s earnings quality and free cash flow conversion have deteriorated compared with before the pandemic, despite other carriers seeing improvements in this areas. On top of that, he lamented Southwest’s growth in price-to-earnings premiums over the same time frame. “Over time, we see Southwest’s valuation correcting to more normalized levels, as the network carriers’ premium travel gains, limit Southwest’s efforts to penetrate that category,” Trent wrote to clients in a Wednesday note. With the downgrade, Trent left the majority on Wall Street which has a hold-equivalent rating on the stock, according to LSEG. Trent noted that Southwest’s long-term guide suggests weaker conversion of earnings before interest and taxes to free cash flow compared with pre-pandemic levels. Part of this trouble stems from sale-leaseback activity, the analyst noted. CEO Bob Jordan told staff this week that Southwest was pausing corporate hiring and promotions, as well as suspending most summer internships and some employee events, in a bid to improve margins. This comes amid a rough patch for shares, which dropped about 3% in Thursday’s premarket following the downgrade. The stock has slipped more than 2% so far in 2025. Additionally, shares underperformed the broader market last year with a gain of just 16.4%. LUV 1Y mountain Southwest, 1-year chart