Airline stocks have been devastated by the novel coronavirus and its resulting travel restrictions. JetBlue (NASDAQ:JBLU), the nation’s sixth largest airline, is no exception. Between February 13 and March 23, JBLU stock dropped in value by 68%.
However, with markets stabilizing, the worst appears to be over for now. And with CARES Act aid for JetBlue announced on April 14, the airline’s stock saw a big pop. Now trading at just under $9 — after topping $21 just before the coronavirus slammed the U.S. — is JetBlue a buying opportunity?
JetBlue Lands CARES Act Aid, Stock Responds
On April 14, JetBlue announced that it had reached tentative terms with the government to receive financial aid under the CARES Act.
This represented a major lifeline for the company. JetBlue had been flying over 1,000 flights daily before the coronavirus lockdown, with 23,000 employees. The company says that is now down to under 150 flights daily and its planes are running at just 10% capacity. Clearly that’s an untenable position to be in — a reality that’s been reflected in JetBlue’s plummeting stock price.
JetBlue says that its CARES Act aid will amount to $935.8 million. Of that, $250.7 million must be repaid as a low-interest loan, starting in October. The remaining $685.1 million is a forgivable grant. In return, JetBlue has committed to continuing a minimum level of domestic air service. The U.S. government also gains the right to purchase a limited number of JBLU shares at a pre-determined price. JetBlue says:
“… every dollar of these funds will go directly to salary, wages and benefits for our Crewmembers through September 30.”
The announcement of the CARES Act deal gave JBLU a bump. After closing at $9.03 on April 13, it was trading as high as $10.10 on April 15.
JBLU Performance Compared to Other Airline Stocks
The coronavirus lockdown has hit both international and domestic flights, so no airline has escaped its effects. At the start of the year, U.S. airlines on average filled four of every five seats on their flights; by the end of March, that average was reportedly two of every five seats. The situation has only gotten grimmer in the past three weeks, and the number of flights has also fallen dramatically.
So have airline stocks.
JBLU dropped 68% before bottoming out on March 23. During that same period, American Airlines (NASDAQ:AAL) saw its value drop by 66%. United Airlines (NASDAQ:UAL) stock had been slipping since mid-January (its exposure to the Chinese market hurt it earlier than other airlines), but it fell a further 72%. Southwest Airlines (NYSE:LUV) dropped 44%.
Bottom Line on JBLU Stock
In November — back when a global pandemic on the scale of coronavirus was nothing more than a movie plot — InvestorPlace contributor Will Healy had JBLU featured on a list of stocks expected to soar in coming months. He pointed to the airline’s cost-cutting measures, and “the pattern of 20%-plus annual profit growth expected to continue for JBLU stock for the foreseeable future.”
At that time, JBLU stock was trading at just over $19, and had been unable to hit $20 in nearly two years. Will predicted that if it could break the $20 ceiling, JBLU would “soar.”
He was right. JetBlue stock closed at $21.56 on February 13. We all know what happened after that.
The question is, with JBLU currently trading at $9.19, is it a buy? The CARES Act aid is going to help to keep the airline afloat for several months, but the big unknown is how soon Americans will return to flying. Even the most bearish take on JetBlue sees the stock hitting the $10 level in 12 months — offering nearly 9% upside. Optimists think it could resume its “soaring,” hitting $24. The median take is in the $12 range, which still offers a healthy 30% upside.
Few analysts are recommending buying JBLU at the moment, preferring to see signs of a coronavirus recovery before committing. But if you are okay with some risk, JBLU stock has the potential to be a rewarding long-term investment.
Brad Moon has been writing for InvestorPlace.com since 2012. He also writes about stocks for Kiplinger and has been a senior contributor focusing on consumer technology for Forbes since 2015. As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.