Pick JetBlue Airways Stock For 30% Gain

Per quarterly filings, JetBlue Airways (NASDAQ: JBLU) had guided its Q3 2021 revenues to be 9% lower than observed in Q3 2019 with a significant improvement in load factor. While the fourth wave of infections negatively affected recovery in air travel demand, the company’s strong balance sheet and high operating margin will assist long-term shareholder returns. As passenger numbers at TSA checkpoints have remained fairly stable in the past few weeks, Trefis believes that JetBlue stock is poised for sizable gains. Our interactive dashboard highlights JetBlue Airways During 2008 Recession vs. Now.

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 92% 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 likely to improve in the coming quarters

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. (related: United Airlines’ Aircraft Order To Assist Long-Term Revenue Growth)

The fourth wave of coronavirus infections triggered expectations of a decline in air travel demand in the fourth quarter. However, passenger numbers at TSA checkpoints remain fairly stable – indicating strong domestic travel demand. Thus, revenues and margins are likely to improve in the coming quarters.

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-September 2020:                    Recovery of demand, with the phased lifting of lockdowns – no panic anymore with number of  cases appearing to have plateaued
• October 2020-February 2021:      Unprecedented surge in Covid cases forcing a fresh round of lockdowns across the nation
• Since March 2021:                           Ongoing vaccination drive and gradual re-openings drive an improvement in demand – buoying 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. (related: Are Long-Term Trends In Favor Of Boeing Stock?)