Stock of Jet Blue finished the week at $24.10. We were disappointed to see JBLU drop from
its high on Monday of $26.82, a 10% drop.
The decline, taking place almost entirely on Monday, occurred after JP
Morgan downgraded the stock. Despite
this volatile reaction, the market has a positive opinion on JBLU: there are
nearly as many ‘buys’ as ‘holds,’ leading to a strong rating of
‘overweight.’ Investors have received a
very good return on stock of JBLU over the past year. Indeed, it has returned 5% QTD, 52% YTD, and
35% ITD, as we entered this position at $17.84 this past spring.
There is reason to believe Jet Blue will perform well
when it reports earnings on October 27th. Wall Street EPS estimates have been periodically
revised upward, currently standing at $0.57.
Revenue is expected to increase 10.2% YOY, in part driven by a 13.1%
increase in available seat miles to 3.8 billion in the month of September. In the airline industry, this variable is a
crucial determinant of revenue estimates.
Moreover, industry earnings estimates represent a 137% increase from the
previous quarter.
Jet Blue is positioned well in the current economic
climate. The continued appreciation of
the USD has enabled domestic flyers to command more buyer power when
flying. On the hand, international
flyers will find the rates of the U.S. airlines considerably more expensive in
their home currency. This adversely
impacts such airlines like Delta, wielding a large international presence, but
for Jet Blue, operating almost entirely within domestic borders, currency
values have driven top-line growth. This
will certainly continue, and a decision to raise interest rates will only
accelerate this trend.
Finally, Jet Blue has
made a few headlines. It is currently in
talks with Bombardier, a Canadian aircraft manufacturer, over potential
acquisition of some of its CSeries models—the largest of its models, all of
which are acclaimed for niche quality.
In addition, it announced this month that it will offer Wi-Fi on all of
its flights—a move that was well-received by consumers. Both of these could serve to elevate
Jet-Blue’s quality factor without sacrificing its competitive pricing.
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