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JetBlue’s Liquidity Makes JBLU a Good Bargain

JetBlue Airways (NASDAQ:JBLU) has plenty of cash and liquidity to last through the slump in airline travel from the novel coronavirus.  As a result, JBLU stock is a good bargain since its cash burn is much lower than other airlines.

If You Must Invest in Airlines, There's a Way Better Bet Than JBLU Stock
Source: Shutterstock

JetBlue reported on May 7 that it had $3.1 billion as of April 30, including additional financing after its first-quarter cash of $1.8 billion. In addition, the company said that by the end of Q3 its daily cash burn would be down to just $5 million per day.

If that happens, the cash flow drain during Q4 will be no more than $455 million. If the Q2 and Q3 cash-flow losses are slightly higher than this, say about $600 to $800 million, the company’s total cash outflow is manageable.

That would mean the Q2 estimated outflow of $750 million plus the Q3 drain of $600 million will total $1.35 billion. An additional $400 million for Q4 would leave the airline’s cash balance at $1.35 billion.

So even if 2021 cash burn stayed level at $400 million, it could last another three quarters, assuming airline travel does not pick up.

Keep in mind that JetBlue is continually reducing its costs. The company reduced its operating expenses in Q1 by $150 million. I suspect that the upcoming Q2 report will show further expense and capex cuts. In addition, JetBlue may well show a downward revision in its future cash burn forecast.

Airport Traffic Is Picking Up Despite Covid-19 Uplift

One bright spot for airlines is that the TSA’s website showing checkpoint traffic continues to show higher levels each week.

JBLU stock - Improved TSA Traffic
Source: Mark R. Hake, CFA

You can see in the table at the right that in the past two months, the drop in traffic has significantly improved over the last year.

For example, you can see that in the week ending April 30, the level of traffic was down 94.3% from 2019. But fast forward two months and by July 1, the level of traffic in airports was now only down to 75.4% of last year.

And, the table shows that the traffic in the last week alone has improved from down 77% to down 75.4%.

At this rate, the number of travelers will increase significantly. It will be close to just half of last year by the end of August and beginning of September.

Therefore, inevitably this means that the cash flow prospects for airlines like JetBlue Airways will continue to improve.

What Analysts Are Saying About JBLU Stock

A poll of 15 analysts surveyed by Seeking Alpha shows that JetBlue Airways will return to profitability in 2021. Their average estimate is 41 cents per share, after losing $3.91 per share in 2020.

This is similar to the analyst poll taken by Yahoo Finance on JBLU stock. Their average estimate is for 42 cents per share in 2021, after losing $3.75 in 2020. Marketwatch also shows 16 analysts project 43 cents per share in 2021.

That is basically good news. JBLU stock, at $10.66 is trading for just 25 earnings projected for 2021.

This may seem high, but I suspect analysts are going to project higher earnings as it gets closer to 2021. This is because airline traffic is likely to be increasing as shown in the table above.

In addition, the likelihood of a Covid-19 vaccine will increase, which should spark hope and optimism in the traveling public.

What to Do With JBLU Stock

At the end of Q1 2020, JetBlue still had $4.37 billion in positive shareholders’ equity. This included $3.217 billion in debt. It also works out to $16.19 per share, since JetBlue has 269.71 million shares outstanding.

So, the company could lose another $1.35 billion over the next year, as my worst predictions forecast. But its equity would fall to just $3.o2 billion. And that is on a worst-case basis.

This works out to $11.20 per share. So today’s price of $10.66 is below even that worst-case book value per share.

Therefore, there is plenty of margin of safety in today’s stock price. This is especially true since most analysts are projecting positive earnings next year. So I suggest that investors in JBLU stock will find a meaningful return.

Mark Hake runs the Total Yield Value Guide which you can review here. As of this writing, Mark Hake, CFA does not hold a position in any of the aforementioned securities. 

Article printed from InvestorPlace Media, https://investorplace.com/2020/07/jblu-stock-bargain-jetblue-enough-liquidity-until-profits-return/.

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