So far in 2020, airline stocks, including JetBlue Airways (NASDAQ:JBLU), have been pummelled by the COVID-19 pandemic. Long-term shareholders have had to sit tight as JBLU stock has gone down over 40%. It is now hovering around $10.5.
Now as our economy opens up and recovery hopes outweigh virus worries, investors are wondering if June would be a good month to invest in JetBlue shares.
It is important for investors to appreciate that travel demand may not return to pre-coronavirus levels for several years, and I expect the domestic competitive landscape in the industry to evolve in the coming quarters.
Yet JetBlue management will likely be able to capitalize on various opportunities offered by such changes and possibilities. Therefore, if you are an investor with a 2-3 year time horizon, you may consider buying the dips. JBLU stock price would become especially attractive if it falls toward or even below $9.5.
How Q1 Results Came
In an average year, New York state-based JetBLue Airways carries over 42 million customers a year to more than 100 cities in the U.S., Caribbean, and Latin America. Before the coronavirus lockdown, it had an around 1,000 daily flights. Needless to say, since March, the reality is rather different.
On May 7, the group reported its results for the first quarter 2020. Adjusted loss per share was 42 cents. A year ago, adjusted diluted earnings per share had been 16 cents. This was a wider-than-expected loss.
Revenue was $1.59 billion, or a decline of 15.1% YoY. Analysts were expecting revenue of 1.7 billion. Due to the lockdown, the airline saw a 52% decline in March revenue. Otherwise, it had had a rather solid start to the year-earlier in January and February.
Another metric airline analysts pay attention to is “Revenue passenger miles.” This measure of traffic declined by more than 18% YoY.
In the second half of March, its daily cash burn had been around $18 million. In May, management was hopeful for the number to be below $10 million a day. The airline ended the quarter with approximately $1.8 billion in cash and equivalents, or 22.2% of 2019 revenue.
Many investors have been encouraged by the cash levels the group has at hand. In case of a second coronavirus outbreak or another unexpected disruption to air travel in 2020, the airline will likely be in a safe position to survive the cross currents.
The airline has also reached an agreement with the U.S. Treasury to receive $936 million under the Payroll Support Program of the CARES Act. This payment consists of both $685 million in grants and $251 million in an unsecured term loan. And under the terms of the stimulus program, the group has issued approximately 2.6 million warrants to the U.S. Treasury.
In short, the headline numbers did not offer much to delight investors. However, the quarterly metrics had already been expected to be dismal, and the Street noted that the Q2 numbers expected in early August may not necessarily be any stronger, either.
For long-term investors, what matters more now whether JetBlue can survive 2020 to build a stronger base so that JBLU stock can reach a higher altitude.
Can JBLU Stock Price Recover Soon?
During Berkshire Hathaway’s (NYSE:BRK.A, NYSE:BRK.B) annual meeting in early May, Warren Buffett announced that he had sold his stake in four major U.S. carriers, i.e., American Airlines (NASDAQ:AAL), Delta Air Lines (NYSE:DAL), Southwest Airlines (NYSE:LUV) and (NASDAQ:UAL).
Over the past several weeks, investors have been debating whether Mr. Buffett was right to get out of the industry or whether airlines can somehow recover in the coming quarters.
Since the deregulation of the airline industry starting with the late 1970 first in the U.S. and then globally, low-cost airlines have become major disruptors. JetBlue started flying as a low-cost carrier in 2000 and managed to offer more ‘value’ than just low prices.
By the end of 2013 it had grown to become the fifth-largest passenger carrier in the U.S. based on revenue passenger miles. And the long-term price of JBLU stock is a testament to how successful its business model has been.
After the lows that the shares hit around $3.6 in March 2009, then in Feb 2020, they hit a 52-week high of $21.65. However, in March 2020, the adverse effects of the pandemic hit the headlines, and on March 23, JBLU stock fell to a 52-week low of $6.61. Since then, the price has recovered to around $10.5.
Needless to say, it will likely be a long road for JBLU stock to go back to the highs of $20 and above. However, over its history that spans two decades, JetBlue management has successfully evolved its strategy to embrace new opportunities both stateside and overseas.
In the long run, I expect that experience and agility to propel JBLU stock to new highs from where it is right now.
Investor Takeaway on JBLU Stock
Airlines, including JetBlue, have been among the hardest-hit businesses during the viral outbreak. And investors should be cautious about jumping into airline stocks. The industry would need a high tide to raise all of them. That positive development would possibly require consumers feeling safe enough to fly again forst and foremost.
As airlines get ready to resume operations partially, it will be crucial for JetBlue as well as its peers to make those flights profitable. After all, demand is likely to remain subdued in the rest of the year.
I would urge you to do further diligence in airline stocks and be rather selective on which one to put your hard-earned cash on.
Yet JBLU stock would likely get my attention, especially if there is any further weakness in price. You may want to wait for the release of the next quarterly results to see how passenger numbers are shaping up and where the group is in terms of both daily cash burn as well as balance sheet strength.
Tezcan Gecgil has worked in investment management for over two decades in the U.S. and U.K. In addition to formal higher education in the field, she has also completed all 3 levels of the Chartered Market Technician (CMT) examination. Her passion is for options trading based on technical analysis of fundamentally strong companies. She especially enjoys setting up weekly covered calls for income generation. As of this writing, Tezcan Gecgil did not hold a position in any of the aforementioned securities.