The Buffett boost helped the entire airline industry, but is the optimism justified? aside: he invested in AAL, DAL, LUV and UAL... but not JBLU
Key Stats for JetBlue Airways Corporation
| Ticker | JBLU |
|---|---|
| Sector | Airlines |
| Latest price | $21.63 |
| Value | $7,217M |
| Daily vol | $126M |
| Date | 11 May 2017 |
| Links | Yahoo Finance, SEC Edgar, jetblue.com |
1. What do they do?
they fly, of course!
JetBlue is a passenger carrier company. The Company provides air transportation services across the United States, the Caribbean and Latin America. It's a standard service mainly, but they also have an ultra premium brand called Mint. And in case you are the patriotic type, they prefer Airbus to Boeing.
are the numbers up?
Well yes, they've grown nicely both at the top and the bottom line!
| Metric | 2016A | 2015A | 2014A | 2013A | 2012A |
|---|---|---|---|---|---|
| Revenue | $6.6bn | $6.4bn | $5.8bn | $5.4bn | $5.0bn |
| EPS | $2.22 | $1.98 | $1.19 | $0.52 | $0.40 |
Though clearly they've been helped by the decline in oil prices with price per gallon halving in 2 years with fuel costs going from 36% of total costs to 20%. The net effect has been a massive uptick in margins.
At the topline, that performance is expected to continue, though the earnings aren't as rosy. With rising fuel prices and other costs leading to margins down over 50% in the first quarter.
| Metric | 2016A | 2017E | 2018E |
|---|---|---|---|
| Revenue | $6.6bn | $7.1bn | $7.7bn |
| EPS | $2.22 | $1.86 | $2.05 |
cash for shareholders?
Well, JBLU has just 0.2x net debt to profit, so shareholders shouldn't be worried about leverage.
But that aside, management isn't paying dividends and has no intention to, any time soon. Though there is a share buyback program, returning some capital to shareholders.
2. How do they compare?
Sticking to the numbers, They are rather on the small size, which of course means there is plenty of room for growth! Though small doesn't mean inefficient as their margin and returns are respectable.
| Companies | Latest Sales | Operating Profit | Return on Equity |
|---|---|---|---|
| JetBlue Airways Corporation | $6,620M | 23% | 17% |
| Alaska Air Group, Inc. | $6,333M | 28% | 27% |
| American Airlines Group Inc | $40,370M | 18% | 54% |
| Delta Air Lines, Inc. | $39,536M | 23% | 33% |
| Hawaiian Holdings, Inc. | $2,514M | 24% | 37% |
| SkyWest, Inc. | $3,125M | 19% | -11% |
| Southwest Airlines Co | $20,481M | 23% | 27% |
| Spirit Airlines Incorporated | $2,376M | 23% | 17% |
| United Continental Holdings Inc | $36,781M | 18% | 27% |
But that opportunity doesn't come through in the long-term forecasts. JBLU's 5% growth forecast is more big boy (AAL, DAL, UAL) that darling (e.g. ALK and LUV). So no wonder it's valuation is at the bottom of the pack.
| Peers | Valuation | Forecast PE | Long-term Growth | Dividend Yield | FCF Yield |
|---|---|---|---|---|---|
| JBLU.O | $7,217M | 12x | 5% | 0% | 14% |
| ALK | $10,283M | 11x | 9% | 1% | 12% |
| AAL.O | $23,299M | 10x | 3% | 1% | 17% |
| DAL | $36,780M | 10x | 4% | 2% | 18% |
| HA.O | $2,867M | 10x | -1% | 0% | 11% |
| SKYW.O | $1,850M | 11x | 19% | 0% | 4% |
| LUV | $35,294M | 15x | 12% | 1% | 10% |
| SAVE.O | $3,869M | 13x | 9% | 0% | 9% |
| UAL | $24,323M | 11x | N/A | 0% | 17% |
Incidentally, the sector looks like it's generating great cashflows... but not paying them as dividends. Why, anyone?
3. What does Wall Street think?
The professionals have a $25.69 target price for JBLU and a Buy recommendation. That implies a healthy upside of 19% to their target. That price target hasn't budged since Christmas.
In contrast, earnings forecasts have taken a bath. From $2.50 a share at the start of 2016 to $2.25 by year end to $1.85 now. But that's not hurt the sentiment, has it. And we've seen the valuation go from 7 times to 12 in 9 months.
It's as if Wall Street is giving them the benefit of the doubt, and why not... they've beaten earnings 6 times in the last 8 quarters. So for now, we believe then when they say unit cost pressures will moderate in the second half of 2017 and that the long-term cost cutting will deliver in 2017 and beyond.
4. Buy or Fly?
The oil price seems so influential, that I find it hard to judge airlines. It feels like I need to buy an air fuel company at the same time, if I want to be oil price agnostic. Any suggestions?
At a glance, I'm more tempted by Delta and Skywest. So, I'll decline to Buy JBLU but may still Fly with a different airline.
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Disclosure: I have no position in any of the stocks mentioned. However I may initiate a position within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. Reddit, moderators, and the author do not advise making investment decisions based on discussion in these posts. Analysis is not subject to validation and users take action at their own risk.
Author notes: u/shane_stockflare works at a financial website, Stockflare, and is a Chartered Financial Analyst.
Submitted May 11, 2017 at 11:20AM by shane_stockflare http://ift.tt/2qw3tfv
