UBS has upgraded Southwest Airlines (LUV) to Buy from Neutral, citing significant earnings upside from new seating and bag fee initiatives. The investment bank lifted its price target to $73 from $51, signaling a substantial increase in valuation. Analyst Atul Maheswari projects that the combination of extra legroom (ELR), assigned seating, and checked bag fees could add $4.25 to $4.50 in incremental EPS once the initiatives reach full maturity in fiscal 2027.

These drivers alone are expected to drive the majority of estimated EPS growth, rising from less than $1 in fiscal 2025 to $6+ in fiscal 2027. The firm believes presenting a higher fiscal 2026 EPS range should act as a positive catalyst for the stock. UBS now forecasts EPS of $5.05 for 2026 and $6.07 for 2027, estimates roughly 20% above consensus.

The upgrade reflects confidence in Southwest's ability to monetize its cabin configuration changes and bag fees, which UBS estimates could generate $1.7 billion in additional EBIT by 2027 through paid load factors on ELR and preferred seats.