Time To Buy JetBlue Airways Stock?

by Trefis Team
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JetBlue Airways
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As the fourth wave of the pandemic spreads across the U.S., investors remained concerned for another dip in air travel demand and its impact on the airline industry. Thus, JetBlue Airways stock (NASDAQ: JBLU) has plummeted by 30% since April despite strong domestic demand as highlighted by relatively flat passenger numbers at TSA checkpoints. The company burned just $683 million of operating cash in the pandemic, much lower than the $2 billion drop in the stock’s market capitalization – indicating a potential opportunity for gains. Also, the company is focused on strengthening its balance sheet and expanding margins in the coming years. Our interactive dashboard highlights JetBlue Airways stock performance during the current crisis with that during the 2008 recession

2020 Coronavirus Crisis

Timeline of 2020 Crisis So Far:

  • 12/12/2019:        Coronavirus cases first reported in China
  • 1/31/2020:          WHO declares a global health emergency.
  • 2/19/2020:          Signs of effective containment in China and hopes of monetary easing by major central banks helps S&P 500 reach a record high
  • 3/23/2020:          S&P 500 drops 34% from the peak level seen on Feb 19, 2020, as COVID-19 cases accelerate outside China. Doesn’t help that oil prices crash in mid-March amid Saudi-led price war
  • Since 3/24/2020: S&P 500 recovers 100% from the lows seen on Mar 23, 2020, as the Fed’s multi-billion dollar stimulus package suppresses near-term survival anxiety and infuses liquidity into the system.

In contrast, here’s how JBLU and the broader market performed during the 2007/2008 crisis.

Timeline of 2007-08 Crisis

  • 10/1/2007: Approximate pre-crisis peak in S&P 500 index
  • 9/1/2008 – 10/1/2008: Accelerated market decline corresponding to Lehman bankruptcy filing (9/15/08)
  • 3/1/2009: Approximate bottoming out of S&P 500 index
  • 12/31/2009: Initial recovery to levels before accelerated decline (around 9/1/2008)

JetBlue Airways vs S&P 500 Performance Over 2007-08 Financial Crisis

JBLU stock declined from levels of around $9 in October 2007 (pre-crisis peak) to levels of around $4 in March 2009 (as the markets bottomed out). However, the stock gained significantly post-2008 crisis to levels of about $5.50 in early 2010 – rising by 43% between March 2009 and January 2010. In comparison, the S&P 500 Index first fell 51% in the wake of the recession before recovering 48% by January 2010.

JetBlue Airways’ fundamentals improved in Q2 2021

JetBlue Airways’ revenues increased by 15% from $7 billion in 2017 to $8.1 billion in 2019, assisted by capacity growth and rising ticket prices. In 2020, the company’s top line observed a 64% (y-o-y) contraction as air traffic demand plummeted and cost control measures were implemented. Moreover, the company’s net-margins deteriorated from higher fuel expenses and administrative costs. Thus, the EPS decreased by 45% from $3.47 in 2017 to $1.92 in 2019, and ($4.88) in 2020.

Notably, the company’s Q2 2021 revenues declined by just 29% over Q2 2019 and net margins turned positive. While top line growth was key to margin expansion, the airline industry continues to benefit from the third round of government assistance till September 30, 2021. Interestingly, the company is committed toward margin expansion by controlling costs in the coming years to reduce debt and improve shareholder returns.

CONCLUSION

Phases of Covid-19 crisis:

  • Early to mid-March 2020: Fear of the coronavirus outbreak spreading rapidly translates into reality, with the number of cases accelerating globally
  • Late-March 2020 onward: Social distancing measures + lockdowns
  • April 2020: Fed stimulus suppresses near-term survival anxiety
  • May-June 2020: Recovery of demand, with gradual lifting of lockdowns – no panic anymore despite a steady increase in the number of cases
  • Since late 2020: Weak quarterly results, but continued improvement in demand and progress with vaccine development buoy market sentiment

The company’s focus on revenue and margin expansion in the post-pandemic period is likely to assist cash generation and subsequently shareholder returns.

Do JetBlue Airways’ peers offer better gains? JetBlue Airways Stock Comparison With Peers summarizes how JBLU compares against peers on metrics that matter. You can find more such useful comparisons on Peer Comparisons.

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