JetBlue Airways (JBLU) gained new favor among some investors late last week, but I question whether a best-case scenario for JetBlue already factored into the shares. That’s a billion-dollar question, and I am neutral on JBLU stock because I feel that the market is ‘getting ahead of its skis’ with near-term optimism for JetBlue.
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JetBlue Airways is a well-known airline carrier. The idea that JetBlue would take over rival company Spirit Airlines (SAVE) hit a roadblock earlier this year, when antitrust regulators blocked a possible transaction to merge these companies. The attempted combination was officially abandoned in early March. The possibility of a partial or full Spirit Airlines acquisition regained steam as a result of recent events.
JetBlue stock shot up more than 14% to $7.30 on Friday, whereas Spirit stock sank nearly 25% to $1.69. This may signal bullish sentiment JBLU stock, but I encourage investors to learn all of the relevant facts and consider all of the possible outcomes before rushing into a share position. I ultimately land on a neutral rating for JBLU.
Why JetBlue’s Shareholders are Celebrating Spirit’s Woes
On Thursday, October 3, The Wall Street Journal broke the story that Spirit Airlines “has been in discussions with bondholders over the terms of a potential bankruptcy filing.” Furthermore, it was reported that Spirit Airlines “has also been exploring restructuring its balance sheet through an out-of-court transaction,” though skittish stock traders appeared to be much more strongly focused on the potential Chapter 11 filing. I believe JetBlue might now be given regulatory clearance to purchase some or even all of Spirit’s assets in a post-bankruptcy scenario, but it doesn’t put me in the bull camp.
Furthermore, irrespective of whether JetBlue ends up taking over Spirit Airlines’ assets, it’s still positive news for JetBlue that a defunct Spirit Airlines would lessen competition. After all, some weary Spirit customers might move over to JetBlue even prior to a potential bankruptcy filing. JetBlue stock traders evidently relished Spirit’s misfortune when they dumped SAVE stock and panic-bought JBLU stock last last week.
JetBlue’s Increased Revenue Forecast
JetBlue’s shareholders were already cheerful because the company raised its current-quarter revenue expectations last month. In some ways, JetBlue again appears to be benefiting from the misfortune of others. Specifically, the company acknowledged that it benefited from the CrowdStrike (CRWD) software outage that caused disruptions at other airlines. Because of this and other factors, JetBlue now expects Fiscal Year 2024 revenue growth of -2.5% to +1%, as compared to -5.5% to -1.5% previously. This suggests bluer skies for the company, and a legitimate reason to feel bullish. However, betting on further gains right now seems risky.
JetBlue also believes that its current-quarter unit costs (excluding fuel) will increase by 5% to 7%, which is a lower range than the company’s prior forecast of a 6% to 8% increase. All in all, it certainly sounds like JetBlue is preparing investors for an excellent quarter. Could the optimism set up for potential disappointment, though?
Best-Case Scenarios Possibly Already Priced In
JetBlue certainly seems optimistic about the current quarter. However, that optimism will be put to the test on October 22, when JetBlue is scheduled to release its third-quarter Fiscal Year 2024 earnings. The potential problem with JetBlue’s raised expectations is that market participants have probably already baked those hopes into the current share price. Now, JetBlue has the difficult task of meeting or exceeding those expectations, and any disappointment could prompt a sell-off. That’s why I’m taking a neutral stance on JBLU stock today.
Renewed hopes for a possible JetBlue-Spirit asset acquisition already exist, and the pricing-in of Friday’s news was almost immediate, with JetBlue shares gaining 14% by the end of the trading session. It’s probably too late to get ahead of the crowd at this point.
JetBlue’s Valuation: Assess With Caution
Coming from a different angle, value-focused investors may have difficulty assessing whether JetBlue Airways shares are reasonably priced. That’s because the company is unprofitable, making P/E ratio analysis impossible. That provides an additional challenge for investors trying to assess the fair value of JBLU stock.
Granted, there are alternative metrics w can look at. JetBlue’s GAAP trailing 12-month price-to-sales (P/S) ratio of 0.26x compares favorably to the sector median P/S ratio of 1.53x as well as JetBlue’s five-year average P/S ratio of 0.65x.
JetBlue’s trailing 12-month price-to-book (P/B) ratio of 0.91x is significantly lower than the sector median P/S ratio of 2.8x and roughly in line with JetBlue’s five-year average P/S ratio of 0.9x. Whether these metrics should steer value-focused investors in a bullish direction is debatable. Personally, I lean on earnings and P/E ratios as my go-to metrics since they reflect the company’s bottom-line data. Consequently, I’ll stay on the sidelines and let other investors pick their preferred valuation metric in appraising JBLU shares.
Is JetBlue Stock a Buy According to Analysts?
On TipRanks, JBLU stock comes in as a Hold based on one Buy, four Holds, and one Sell rating assigned by analysts in the past three months. The average JBLU price target is $5.83, which is nearly 20% lower than today’s trading price.
If you’re wondering which analyst to follow regarding JBLU, the most profitable analyst covering the stock (on a one-year timeframe) is Michael Linenberg of Deutsche Bank (DB), with an average return of 16.05% per rating and a 54% success rate.
Conclusion: Should Investors Consider JetBlue Stock?
JetBlue may or may not meet its raised current-quarter expectations, and the potential benefit from Spirit Airlines’ woes is unknown.
Investors, emboldened by recent news, have baked a lot of hope and hype into JetBlue shares, in my view. If you’re a prudent investor, then you should be wary when short-term traders get ahead of themselves. Therefore, I am neutral on JBLU stock and would prefer to watch from the sidelines for now instead of jumping headfirst into a share position.
