Will Odds Return In Favor Of JetBlue Airways Stock?

-17.18%
Downside
8.73
Market
7.23
Trefis
JBLU: JetBlue Airways logo
JBLU
JetBlue Airways

The sudden spike in benchmark oil prices from $70 in early January to $110 at present has weighed on airline stocks including JetBlue Airways (NASDAQ: JBLU). Fuel costs account for a fifth of JetBlue’s operating expenses and the 60% rise is expected to make a short-term dent on the bottom line. JetBlue’s stock has observed a $2.5 billion contraction in market capitalization in the last two years, during the pandemic, despite generating $1 billion of operating cash. Per annual filings, the company does not have fuel hedges to shield itself from the  oil price surge. Considering an operating loss from high fuel prices during the first quarter, investors seem to be too pessimistic on the stock despite strong passenger demand. Our interactive dashboard on JetBlue Airways valuation highlights the historical trends in revenues, earnings, valuation multiple, and forecast for FY2022.

Before the pandemic, JetBlue Airways’ revenues observed an average growth rate of 7% p.a. from $6.6 billion in 2016 to $8.1 billion in 2019. The company earns its revenues from the sale of air tickets and other ancillary services such as cargo & vacation packages. Top line expansion has been assisted by continued capacity growth and rising ticket prices. Moreover, the company’s net margins have remained relatively flat within the 8-10% range with little change in earnings per share as the company took a balanced approach on debt repayments and share buybacks.

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Passenger and Air Cargo Demand Remains Strong

In recent months, investors have been optimistic on Atlas Air (NASDAQ: AAWW) and Allegiant Travel Company (NASDAQ: ALGT) despite concerns of high inflation and supply chain disruptions impacting macroeconomic recovery. Atlas Air is a global provider of leased aircraft and aviation operating services and Allegiant Travel Company is an air carrier that focuses on under-served U.S. cities. Atlas Air stock has more than doubled and Allegiant stock is down by just 10% from pre-pandemic levels assisted by air freight and domestic passenger demand, respectively. Domestic and Caribbean & Latin America regions contribute 70% and 30% of the company’s total revenues, respectively.

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 Returns Mar 2022
MTD [1]
2022
YTD [1]
2017-22
Total [2]
 JBLU Return -17% -11% -43%
 S&P 500 Return -2% -10% 91%
 Trefis MS Portfolio Return -3% -13% 244%

[1] Month-to-date and year-to-date as of 3/10/2022
[2] Cumulative total returns since the end of 2016

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