Can JetBlue Reverse Its Downfall?

Shares of JetBlue (JBLU) have retracted over the last few trading sessions as investors are still hurting from the missed opportunity in the form of Virgin America (VA). I thought that acquiring Virgin America would have greatly benefited JetBlue and the acquisition made a lot of sense.

However, Alaska Airlines (ALK) grossly overpaid for Virgin America and JetBlue was smart to walk away from the deal.
Although JetBlue missed out on a great opportunity, it can still expand its business on the West Coast and the recent sell-off looks unwarranted. Hence, I think investors should buy JetBlue on the dip especially before the earnings.

Estimates

JetBlue is expected to report its quarterly report next week on 26 April. Analysts are expecting JetBlue to post EPS of $0.54. JetBlue’s EPS came in at $0.40 in the year-ago period and much of the earnings increase in this quarter can be attributed to the fall in crude oil prices.

On the revenue front, analysts are expecting JetBlue’s sales to jump roughly 6.6% year over year to $1.62 billion. While JetBlue’s growth has slowed down drastically, the carrier is expected to continue growing in the 6%-9% range over the next two years.

Given the expected growth, I think JetBlue is trading at a bargain right now and is a great buy on the pullback. JetBlue is trading at just 10x trailing earnings whereas its forward P/E stands at 8.15 as of writing this article.

With a P/S ratio of just 1.03, the market is not factoring in JetBlue’s future growth into its current price, which is why I think the stock is a buy going into earnings.

Merger possibilities

JetBlue missed out of Virgin America, but the bidding war with Alaska Airlines was pretty intense. JetBlue has a net debt position of $1 billion, yet it was willing to spend billions on the acquisition of Virgin America, meaning that the company is not afraid to take on further debt to grow.

JetBlue’s next potential target can be Hawaiian Holdings (HA). However with a market cap of $2.45 billion, the acquisition is unlikely for now.

Conclusion

JetBlue may not have an easier way out to expand its business on the West coast now, but the carrier is still growing at a decent pace. The market has not factored in the carrier’s growth into its current share price, which is why I think the stock is a decent buy heading into earnings.
Published on Apr 22, 2016
By Ayush Singh

Copyrighted 2016. Content published with author's permission.

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