What’s Next For JetBlue Stock After A Sharp 19% Fall Post Q1 Results?

JetBlue (NASDAQ: JBLU) recently reported its Q1 results, with revenues meeting and earnings exceeding our estimates. The company reported operating revenue of $2.2 billion, down 5% year over year and aligning with our estimate. Its adjusted loss of $0.43 per share was slightly better than our estimate of $0.50 loss per share. Despite an upbeat bottom line, JBLU stock plunged 19% in a single day after the results were announced. This can be attributed to a downward revision to its revenue guidance for 2024. In this note, we discuss JetBlue’s stock performance, some key takeaways from its recent results, and its valuation.

Firstly, let us look at its stock performance in recent years. JBLU stock has suffered a sharp decline of 60% from levels of $15 in early January 2021 to around $6 now, vs. an increase of about 35% for the S&P 500 over this roughly three-year period. Notably, JBLU stock has underperformed the broader market in each of the last 3 years. Returns for the stock were -2% in 2021, -54% in 2022, and -14% in 2023. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 24% in 2023 — indicating that JBLU underperformed the S&P in 2021, 2022, and 2023.

In fact, consistently beating the S&P 500 – in good times and bad – has been difficult over recent years for individual stocks; for heavyweights in the Industrials sector including CAT, GE, and UNP, and even for the megacap stars GOOG, TSLA, and MSFT. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride as evident in HQ Portfolio performance metrics.

Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, could JBLU face a similar situation as it did in 2021, 2022, and 2023 and underperform the S&P over the next 12 months — or will it see a recovery? From a valuation perspective, JBLU stock looks appropriately priced. We estimate JetBlue’s Valuation to be $6 per share, aligning with its current market price. Our forecast is based on 0.2x sales for JetBlue, compared to its last eight-quarters average of 0.3x.

JetBlue’s revenue of $2.2 billion in Q1 reflected a 5.1% y-o-y decline, led by a 2.7% fall in available seat miles, a 10 bps fall in load factor, and a 3.1% fall in yield per passenger-mile. The capacity is expected to remain lower in 2024 as some of the company’s aircraft are out of operation due to engine inspections by Pratt & Whitney. Although Pratt & Whitney will compensate JetBlue for aircraft out of operation, JetBlue will likely record the compensation as a reduction to aircraft assets on its balance sheet. JetBlue’s adjusted operating margin contracted 140 bps to -7.1% in Q1 amid higher costs. Lower revenues and margin resulted in the bottom-line falling to a $0.43 loss per share, versus a loss per share of $0.34 in the prior-year quarter.

Overall, JetBlue’s Q1 results were better than anticipated, but its guidance was a let-down. The company will face headwinds in the near term, with elevated fuel prices, and an expected increase in expenses due to some of the aircraft out of operation. Furthermore, there is a pressure on revenue growth due to elevated capacity concerns in Latin America. Given these factors, we don’t expect any significant near-term growth in JBLU stock from its current levels of $6.

While JBLU stock appears appropriately priced for now, it is helpful to see how JetBlue Airways’ Peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.

[1] Returns as of 4/24/2024
[2] Cumulative total returns since the end of 2016

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