Should You Sell JetBlue Stock After The Recent Rally?

by Trefis Team
JetBlue Airways
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The shares of JetBlue Airways (NASDAQ: JBLU) have rallied 30% in the past twenty-one days almost reaching pre-Covid levels, driven by the second round of payroll support by the U.S. government and the recent surge in passenger numbers at TSA checkpoints. Will JBLU stock sustain its value or observe a downside? Considering Booking Holdings stock (NASDAQ: BKNG) as a proxy for travel demand, the recent surge indicates that ongoing vaccination is alleviating travel fears with the likelihood of a rebound in travel demand later this year. Trefis compares historical stock price trends of JetBlue and Booking Holdings in an interactive dashboard analysis, JBLU Stock Has 51% Chance Of A Decline Over The Next Month After Rising 1.8% In The Last 5 Days. 

Airline and OTA stocks have outperformed broader markets this year

In the past twenty-one days, JetBlue, Southwest, and Spirit Airlines stocks have rallied 30%, 23%, and 30%, respectively – higher than 7.4% gain observed in BKNG stock. Looking at the past ten-day performance, the travel industry is touching new heights even though broader markets are observing a correction. Fundamentally, JetBlue Airways and Booking Holdings observed a similar 60% (y-o-y) top-line contraction in 2020 as travel demand fell to multi-year lows due to the pandemic.

Is JBLU stock trading at a risky level?

With companies implementing cost control and cash preservation measures, a comparison of cash burn rate can be considered as a measure of operational efficiency. In 2020, JetBlue Airways burned $234 million (operating cash outflow including the impact of payroll support program) whereas Booking Holdings generated $85 million. Considering JetBlue and Booking Holding’s historical cash generation capabilities, both companies can recoup pandemic-related losses within one year as demand trends back to normal.

As Booking Holding’s balance sheet observed a lower pandemic impact than JetBlue, BKNG stock has surpassed pre-Covid levels while JetBlue stock remains slightly below. Interestingly, airline tickets reserved through Booking Holdings increased by 4% (y-o-y) in Q4’20. Therefore, we believe that JBLU stock has low downside risk supported by travel demand, stringent cost control measures, and a second round of government aid.

While the hospitality sector observes a recovery, the coronavirus pandemic has created many pricing discontinuities which can offer attractive trading opportunities. For example, you’ll be surprised how the stock valuation for Expeditors International vs. LGI Homes shows a disconnect with their relative operational growth. You can find many such discontinuous pairs here.

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