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.