JetBlue (NASDAQ:JBLU) provided a stellar set of earnings in early May, underlining how it effectively managing operations despite the general slowdown of the economy. JBLU stock has gained close to 21% over the last month, as airlines start to shake off the effects of the novel coronavirus.
The latest quarterly figures also confirmed another important fact – the airline has the liquidity to survive the crisis. At the same time, cash burn is falling while air traffic is showing signs of recovery. With a strong balance sheet, robust liquidity position and air travel demand improving, there’s a lot to be happy about if you are a JBLU stockholder.
Robust Liquidity Will Help JBLU Stock
Covid-19 has severely damaged several sectors, but due to the nature of the crisis, airlines are particularly affected.
Despite signs of recovery, many analysts agree that it will take time for air traffic to return to pre-pandemic levels. Scientists are scrambling all over the world to come up with a vaccine. But it’s up in the air when it will be commercially available, and that’s why airlines remain a risky investment.
In such an environment, every company in the sector is looking to bolster its liquidity position, and JetBlue is no different. As part of its first-quarterly results, the company revealed its cash and cash equivalents would exceed $3 billion by April. The figure includes $1 billion secured under a 364-day term loan and drawdowns from its $550 million revolving credit facility. Also, the U.S. government provided the airline with $936 million in payroll support, along with an option to apply for a loan of up to $1.14 billion by the end of September.
Here’s a look at how the company’s cash position stacks up against that of peers American Airlines (NASDAQ:AAL) and Southwest Airlines (NYSE:LUV):
As you can see, liquidity is not a problem at this stage.
Cash Burn Is Slowing, and Will Eventually Plummet
It’s imperative for airlines to effectively curtail costs and make sure they are not burning through cash too quickly during this crisis. The good news here is that JetBlue is doing an excellent job in both departments. Cash burn was at its highest in March at $18 million per day. However, that figure is down to $10 million and will continue to drop.
JetBlue is in talks to suspend services on routes that suffer from low demand – a move that will help in reducing operational costs. It’s not a straightforward process since the CARES Act has provisions that force companies to maintain service on specific routes. However, JetBlue recently gained an exemption to not run flights on 16 routes through Sept. 30. So there’s certainly a degree of flexibility here that the company can exploit.
CapEx Savings Are In the Billions
JetBlue is going to spend $850 million on capital expenditures during the year, significantly lower than its original plan of $1.55 billion. The company also is looking to defer key capital projects to preserve liquidity. For instance, JetBlue successfully delayed A321neo deliveries.
Considering all these initiatives, its no surprise that the company is forecasting a cash burn of $7 to $9 million from the third quarter onward. In a worst-case scenario, if demand bottoms out, the company can slash costs further or apply for the $1.14 billion to manage its expenses. However, the company is not at risk of running out of cash at this point.
Looking Ahead
JetBlue logged respectable first-quarter numbers. However, these figures will oscillate throughout the year due to the nature of this crisis. Revenues of $1.51 billion did manage to beat estimates. Still, there is a caveat there because these figures do not include the full impact of Covid-19, only capturing glimpses of demand evaporation in March.
Analysts are forecasting annual revenues of $3.93 billion for 2020, which will be a 51.49% drop from the previous year. Meanwhile, the forecast for the next year is far perkier, with revenues expected to climb 56.37% to reach $6.14 billion, after which they will stabilize. Again, these estimates will be subject to major revisions since effects of the outbreak are ever-changing.
On a trailing 12-month basis, JBLU stock trades at a P/E ratio of 11.50 times. Meanwhile, the sector trades at an average P/E ratio of 18.54 times. That means shares are trading at a 37.99% discount.
Final Word on JBLU Stock
JetBlue has a lot of things going right at the moment. The company has a pristine balance sheet and a stable liquidity position that leaves plenty of room to increase debt without fearing becoming an issue. Cost-cutting measures and effective cash management have also helped to amplify the company’s financial muscle during this crisis. Add to that a solid first-quarter earnings report and you have the perfect recipe of a stock that is ready to erase its recent losses.
JBLU is a buy for me.
Faizan Farooque is a contributing author for InvestorPlace.com and numerous other financial sites. He has several years of experience in analyzing the stock market and was a former data journalist at S&P Global Market Intelligence. His passion is to help the average investor make more informed decisions regarding their portfolio. Faizan does not directly own the securities mentioned above.
