JetBlue (NASDAQ:JBLU) shares initially reacted favorably to the airline’s second-quarter report. JBLU stock was up slightly in Tuesday’s pre-market session, rallying about 1% to 2% after the company beat on earnings-per-share estimates and met revenue expectations.
However, there wasn’t enough juice in the results for JBLU to take flight. Instead, shares actually sank, falling about 6% in early regular-session trading. There’s good news in the stock’s reaction though: It has brought JBLU stock right back down to a vital area. That gives interested investors a great risk/reward should they want to give JetBlue a shot on the long side.
JBLU Earnings
Earnings of 38-cents-per-share beat estimates of 36-cents-per-share, while sales of $1.93 billion grew 4.9% year-over-year. Fuel costs jumped in the quarter though, rising more than 40% YoY to $2.28-per-gallon. Revenue-per-available seat mile fell 1.2% YoY, while the average fare dropped 70 basis points YoY to $170.80.
As for management’s outlook, this is what JetBlue had to say for the third quarter and full year: “Capacity is expected to increase between 7.5% and 9.5% year over year in the third quarter 2018. For the full year 2018, JetBlue expects capacity to increase between 6.5% and 7.5%, including a 2 point reduction to capacity in the fourth quarter of 2018.”
Valuing JBLU Stock
It’s not that the quarter was particularly terrible, but I think another culprit is at hand: competition. Not necessarily in the form of fare wars or airlines low-balling on key JetBlue routes though. Instead, other stocks look more attractive to investors, like Delta Air Lines (NYSE:DAL), United Airlines (NYSE:UAL) and others.
Estimates call for JetBlue’s revenue to grow 9.6% in 2018 and 8.7% in 2019. On the earnings front, analysts expect full-year earnings of $1.68-per-share. That’s actually down from the year before and prices JBLU stock at about 11 times this year’s earnings. For 2019, expectations call for 21% growth to $2.04-per-share.
Eleven-times earnings is not particularly expensive, but it’s more expensive than many of its peers and JBLU stock doesn’t pay out a dividend.
Earlier this month we compared four airlines — DAL, UAL, Southwest Airlines (NYSE:LUV) and American Airlines (NASDAQ:AAL). Three of these four have a lower valuation than JBLU, along with superior dividend yields and better earnings growth this year. Admittedly though, JBLU has better revenue growth and earnings growth in 2019 than the four listed above. But given its valuation, investors may not find JBLU worth it, yet.
Trading JBLU Stock
JetBlue doesn’t have the worst valuation/growth profile in the world. As investors punish the stock on Tuesday, it will be important to see how it handles this $18 to $18.50 level.
This has been a significant level for JBLU stock over the course of several years. The downtrend line of resistance is in plain view too, but even a rally to this point would be significant. The key for bulls — whether they’re new or have been holding a position for a while now — is whether this current support area holds up.
Below $18.50 and JBLU stock becomes iffy. I personally would not initiate a new position below this mark. Above $18 is still okay, but it definitely leaves JetBlue on the ropes. The bottom line: Above $18.50 and interested bulls can take a low-risk long position in the name.
Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell. As of this writing, he did not hold a position in any of the aforementioned securities.
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