What’s Happening With JetBlue Stock?

JetBlue stock (NASDAQ: JBLU) currently trades at $7 per share, more than 65% 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 3% over the same period. JBLU stock was up nearly 15% on Friday, Oct 4, after the reports of Spirit Airlines exploring bankruptcy filing emerged. ^[1]

Spirit Airlines has been struggling to stay afloat amid losses. The company’s reported losses increased from $473 million in 2021 to $677 million in the last twelve months. Now, JetBlue and Frontier Airlines are key competitors to Spirit Airlines, and if Spirit were to go bankrupt, JetBlue and Frontier stand to gain. This was reflected in Friday’s uptick for these stocks.

Notably, JBLU stock has performed worse than the broader market each year since 2021. Returns for the stock were -2% in 2021, -54% in 2022, and -14% in 2023. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, is less volatile. And it 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 around rate cuts and multiple wars, 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? After its recent rise, we think JBLU stock now looks overvalued. Even if Spirit were to file for bankruptcy, other airlines will need to invest more to capture the market share. With JetBlue’s already high debt level, the company may find it difficult to raise additional funds. Moody’s downgraded the ratings for JetBlue to B3 in August, after the company raised more money. Also, the company has spent cash for its operations in the last twelve months.

We estimate JetBlue’s Valuation to be $6 per share, slightly below the current levels of $7. 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.

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.

• 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.
• August 2023 – August 2024: Fed has kept interest rates unchanged to quell fears of a recession and keep inflation in check
• September 2023: Fed cut rates by 50 bps and pointed to more rate cuts going forward

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 $9.3 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 $2.79 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 $6.0 billion now, while its total cash decreased from $2.8 billion to $1.5 billion over the same period. The company utilized cash of $73 million toward its operating activities in the last twelve months. Given that JBLU stock has lost significant value in recent years, its market capitalization now stands at just over $2.5 billion and its total debt of around $6 billion translates into a very high debt to equity ratio of 240%. 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 10/7/2024
[2] Cumulative total returns since the end of 2016

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1. Spirit Airlines Explores Bankruptcy Filing, Alexander Gladstone, Alison Sider and Andrew Scurria, The Wall Street Journal, Oct 3, 2024 [↩]