Shares of JetBlue Airways NASDAQ: JBLU continue to rise in 2019. The stock is up approximately 20% in 2019 and is coming off a strong earnings report. JBLU reported earnings that beat its consensus earnings estimate by 8 cents a share (59 cents versus 51 cents that was expected). The airline’s revenue of $2.09 billion was in-line with analysts’ estimates. On a year over year basis, JetBlue’s revenues were up 3.9%.
The Airline Market Remains Brutally Competitive
Despite the positive earnings report, the news has not been all good for JetBlue’s business. Airlines look for both traffic and capacity to increase. And this was the case for JetBlue. Revenue passenger miles (RPMs) which is a common metric for traffic came in at 4.31 billion. This was up 6.2% on a year over year basis. Capacity, as measured by consolidated capacity (available seat miles or ASMs), expanded 6.7% to 5.22 billion year-over-year.
However, one of the key metrics used for airlines is load factor. This is the percentage of seats filled by passengers. JetBlue’s load factor shrank by 40 basis points to 82.5% because capacity expansion outpaced traffic. This continues a trend that has been consistent through 2019. JetBlue has posted a 5.7% rise in RPMs, but ASMs grew at a larger pace of 6.8%.
However, the company is expressing optimism that 2020 will be the year they begin to reap the benefits from an aggressive cost-cutting program that began in 2017. Much of the cost-cutting has been gained through new software tools that have helped the company optimize areas like inventory and labor hours.
JetBlue’s Runway Includes Two Significant Catalysts
One of the catalysts for JetBlue stock is the composition of its fleet. Notably absent are any of the Boeing 737 MAX airliners that have been held up while the ongoing FAA probe is resolved. Other airlines, such as JetBlue rivals American Airlines NASDAQ: AAL, United Airlines NASDAQ: UAL, and Southwest Airlines NYSE: LUV continue to struggle to balance passenger demand with available planes. JetBlue has had no such problems since it does not use any of the 737 MAX planes. The majority of the JetBlue fleet is composed of Airbuses.
Recent news suggests that JetBlue’s competitors may soon be taking receipt of the 737 MAX planes. However, it remains to be seen if consumers will avoid the carriers who fly the 737 MAX. That means JetBlue may still retain a slight advantage.
Another catalyst for the stock is their recent announcement of a “Blue Basic” fare class. JetBlue is a little late to the bargain fare game. American, United, and Delta Airlines NYSE: DAL among others have issued budget fares in recent years. The intent is to undercut the low-cost carriers who are attracting a price-sensitive public. Blue Basic fliers will have the ability to earn frequent flyer points; albeit at a reduced rate of two points per dollar spent on the fare (other flights allow six points per dollar spent).
The program should allow JetBlue to compete on leisure routes and may allow the airline to generate ancillary revenue through extra service fees. However, to that end, while some analysts have been pushing for JetBlue to charge for in-flight internet they may find that difficult to do as other carriers (notably Delta) are eliminating Wi-Fi fees.
Consumers who choose JetBlue’s Blue Basic fare will not be allowed to make changes or cancellations, even same-day changes or standbys. One of the key distinctions is that Blue Basic fliers will board the plane last; increasing the chance the overhead bins may be full.
The Technical Case for JetBlue Stock is Mixed
JBLU stock is up over 10% in the past month. However, the stock is finding resistance near its 52-week high of $19.93. Supporting the bullish case is that the stock is currently well above both its 50-day and 200-day simple moving average. In the last 12 months, the stock is up over 7% and is up over 21% in 2019. However, the stocks Relative Strength Index (RSI) has hit reached 70 every time the stock reaches a resistance level. This is suggesting that investors are not ready to push the stock above its current levels. Volume has also slowed which suggests that JetBlue is not being as actively traded after the earnings report.
Analysts are taking a neutral view on JetBlue stock. Fourteen Wall Street analysts have issued ratings and price targets in the last 12 months. The consensus rating for the stock is Hold. However, the consensus price target $21.61 which would be an increase of over 11% from current levels.
On the other hand, JetBlue got a bump in October when JPMorgan analyst Jamie Baker upgraded JBLU stock to overweight from neutral. Baker cited JetBlue’s valuation, which is lower than other airline stocks, as a reason for the upgrade. According to Baker, the stock has the potential to grow by up to 25% if the company is successful with its cost control plan.
Is JetBlue a Buy?
JetBlue is a solid company that is taking sincere efforts to add shareholder value. It’s also competing in a brutally competitive industry that is not getting any less challenging. With that said, I think the stock is intriguing, but I tend to side with the analysts. It’s reasonable for investors to take a wait and see approach with JBLU stock until it can show a meaningful move above its current price.
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