Will JetBlue Stock Rebound To Its 2021 Highs of Over $20?

JetBlue stock (NASDAQ: JBLU) currently trades at $6 per share, more than 70% below its peak level of $22 seen in March 2021. In comparison, its peer – United Airlines stock (NASDAQ: UAL) saw its stock decline by around 20% over the same period. JBLU saw its stock trading at around $8 in early June 2022, just before the Fed started increasing rates, and is currently trading about 30% below that level, compared to over 45% gains for the S&P 500 during this period. This underperformance can partly be attributed to the headwinds that the company is facing from elevated fuel prices and some of its aircraft out of operation due to engine inspections by Pratt & Whitney. Returning to the pre-inflation shock level means that JBLU stock will have to gain more than 250% from here. However, we do not believe that will materialize anytime soon. Our detailed analysis of JetBlue’s upside post-inflation shock captures trends in the company’s stock during the turbulent market conditions seen over 2022. It compares these trends to the stock’s performance during the 2008 recession.

JBLU stock has underperformed the broader market in each of the last three 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 and HON, 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, we think JBLU stock has little room for growth. 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. A slight decline in valuation multiple seems justified, given the near-term headwinds.

• 2020 – early 2021: Increase in money supply to cushion the impact of lockdowns led to high demand for goods; producers unable to match up.
• Early 2021: Shipping snarls and worker shortages from the coronavirus pandemic continue to hurt supply.
• April 2021: Inflation rates cross 4% and increase rapidly.
• Early 2022: Energy and food prices spike due to the Russian invasion of Ukraine. Fed begins its rate hike process.
• June 2022: Inflation levels peak at 9% – the highest level in 40 years. The S&P 500 index declined more than 20% from peak levels.
• July – September 2022: Fed hikes interest rates aggressively – resulting in an initial recovery in the S&P 500 followed by another sharp decline.
• October 2022 – July 2023: Fed continues rate hike process; improving market sentiments helps S&P500 recoup some of its losses.
• Since August 2023: Fed has kept interest rates unchanged to quell fears of a recession, and it is prepared for rate cuts in 2024 and 2025.

In contrast, here’s how JBLU stock and the broader market performed during the 2007/2008 crisis.

Timeline of 2007-08 Crisis

• 10/1/2007: Approximate pre-crisis peak in S&P 500 index
• 9/1/2008 – 10/1/2008: Accelerated market decline corresponding to Lehman bankruptcy filing (9/15/08)
• 3/1/2009: Approximate bottoming out of S&P 500 index
• 12/31/2009: Initial recovery to levels before accelerated decline (around 9/1/2008)

JBLU and S&P 500 Performance During 2007-08 Crisis

JBLU stock declined from nearly $9 in September 2007 (pre-crisis peak) to below $4 in March 2009 (as the markets bottomed out), implying JBLU stock lost almost 60% of its pre-crisis value. It recovered post the 2008 crisis to levels of around $5 in early 2010, rising over 40% between March 2009 and January 2010. The S&P 500 Index saw a decline of 51%, falling from levels of 1,540 in September 2007 to 757 in March 2009. It then rallied 48% between March 2009 and January 2010 to reach levels of 1,124.

JBLU Fundamentals Over Recent Years

JetBlue’s revenues increased sharply from $6.0 billion in 2021 to $9.5 billion in the last twelve months, owing to a solid recovery in travel demand post-pandemic. The company has benefited from increased capacity and higher yields in recent years. Despite higher revenue, the company saw its reported loss expand from $0.57 per share to a loss of $0.93 per share, due to a rise in both fuel and non-fuel expenses.

Does JBLU Have A Sufficient Cash Cushion To Meet Its Obligations Through The Ongoing Inflation Shock?

JetBlue’s total debt increased from $4.8 billion in 2021 to $5.7 billion now, while its total cash decreased from $2.8 billion to $1.6 billion over the same period. The company reported operating cash flows of $199 million in the last twelve months. Given that JBLU stock has lost significant value in recent years, its market capitalization now stands at just over $2 billion and its total debt of around $6 billion translates into a very high debt to equity ratio of 278%. The high debt burden is a near-term risk that the company faces.

Conclusion

With the Fed’s efforts to tame runaway inflation rates helping market sentiment, we believe JetBlue (JBLU) stock has the potential for gains once fears of a potential recession are allayed. That said, elevated fuel prices, high debt levels, and the impact from engine inspection remain the key near-term risk factors.

While JBLU stock appears to be fully valued, 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 7/5/2024
[2] Cumulative total returns since the end of 2016

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