Of all the industries that were damaged by the onset of the novel coronavirus, airlines were among the most negatively impacted. Investors in JetBlue Airways (NASDAQ:JBLU) have yet to recover their losses this year. Is there any hope for a turnaround in JBLU stock?
The company’s recent second-quarter earnings results failed to deliver the positive catalyst that JBLU stockholders were looking for. The analysts weren’t particularly optimistic, yet somehow the airline managed to underperform their dismal expectations.
It might be tempting to dump one’s shares or just avoid JBLU stock altogether. Yet, a contrarian might see the situation in a completely different light.
Sooner or later, a “buy when there’s blood in the streets” strategy (to loosely quote Baron Rothschild) might just yield strong returns with JBLU.
A Closer Look at JBLU Stock
Looking back over the past 20 years, we can discern a couple of the bulls’ attempts to push JBLU above $27. The first attempt was back in 2003, while the other was in 2015.
One thing we can say about the bears is that when they take control of JBLU stock, they really punish it. By March 23 of this year, JBLU had fallen all the way down to its 52-week low of $6.61. The coronavirus undoubtedly played a part in that share-price downturn.
The attempt to push JBLU back above $15 and hold it there in June was rejected. By the end of July, JBLU stock was languishing at $10 and change. At least we can say, though, that the stock price has been much higher in the past.
Still, regardless of what happens for the remainder of 2020, it’s advisable to take profits if JBLU approaches the long-standing resistance level of $27.
Earnings, or Lack Thereof
As I alluded to earlier, JetBlue’s recent second-quarter earnings announcement didn’t galvanize the bulls into bidding up the JBLU share price.
The analyst consensus estimate called for an adjusted quarterly per-share earnings loss of $1.96. Apparently the experts weren’t especially confident, yet JetBlue still underwhelmed with a loss of $2.02 per share.
At the same time, JetBlue’s quarterly revenues totaled $215 million That signifies a jaw-dropping year-over-year decline of nearly 90%. Even with the foreknowledge of the aviation industry’s woes, that number was hard to accept.
On top of all that, JetBlue projected that the airline’s third-quarter capacity will decline by 45% on a year-over-year basis. Moreover, JetBlue’s estimates for the third quarter would imply revenues of just $417 million.
With the foregoing stats in mind, plus the persistent lack of demand for air travel, JetBlue basically had to admit that the outlook is less than ideal. The airline admitted, “we expect demand trends will continue to be volatile and recovery will not be linear.”
Healing the Burn
So, you’ve heard the bad news, and it is indeed pretty bad. By JetBlue’s own admission, the pickup in air-travel demand will not be smooth or easy.
There is some good news, though. At least, JetBlue can say that it burned through its cash slower during the second quarter. Specifically, the company’s average daily cash burn during that time was $9.5 million. JetBlue had been expecting $11 million per day.
Furthermore, JetBlue’s average daily cash burn was less than $8 million at the end of June. Looking ahead, the company expects its daily average cash-burn rate to be between $7 million and $9 million during the third quarter.
As JetBlue CEO Robin Hayes elaborated, cash-burn reduction is one of the company’s three main pillars in its fiscal-recovery strategy.
“The first is to reduce our cash burn. The second step is to rebuild our margins. The third and last step is to repair our balance sheet,” said Hayes.
That’s actually a sensible and feasible strategy. It feels as if JetBlue’s not trying to post a spectacular comeback in the third quarter. The company just wants to show progress. It’s all about the baby steps, folks.
The Bottom Line on JBLU Stock
When a company hits rock bottom, that can sometimes be a setup for an impressive turnaround. Believe it or not, a dismal second quarter might be exactly what JBLU stockholders needed. It doesn’t feel wonderful now, but the relief rally later on, if it happens, could be powerful.
As of this writing, David Moadel did not hold a position in any of the aforementioned securities.