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JetBlue, With Expectations Low, Could Face Changes

New York (TheStreet) -- With most airlines scheduled to report second-quarter earnings on Wednesday and Thursday, a series of analysts have reserved their most negative outlooks for JetBlue (JBLU - Get Report)

JetBlue shares closed Monday at $10.71, up 25% year to date. Among major airlines, only United (UAL), with a 16% gain, has done worse, and some analysts viewed United's June traffic report as a symbol that the long-troubled global carrier is starting to turn things around.

Among major airlines, JetBlue seems almost uniquely dedicated to offering premium service levels at coach prices. It is more a formula to encourage customer loyalty than one to power above-average returns. Over the past five years, JetBlue shares have gained about 100% while Delta (DAL - Get Report) shares have gained about 400% and United shares have gained about 1,000%.

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JetBlue would logically be expected to be a beneficiary of the strength of the domestic market but it seems to face a series of impediments.

Perhaps as a result, the outlook for CEO Dave Barger, whose contract expires in February, is uncertain. Barger told The Wall Street Journal in May that he would be discussing his future with the board. In the meantime, Robin Hayes, promoted as president of JetBlue in January, is seen as a potential successor.

In a recent report, Stifel Nicolaus analyst Joseph DeNardi called JetBlue the airline most likely to miss earnings expectations. Analysts surveyed by Thomson Reuters are estimating earnings of 19 centsa share: DeNardi said he expects 17 cents. He anticipates that load factor growth will be below expectations.

Like most analysts, DeNardi reduced his expectations following JetBlue's traffic report last month which led to a widespread conclusion that second-quarter revenue per available seat mile would be around 6%, at the low end of early estimates.

Wolfe Research analyst Hunter Keay takes the view that JetBlue shares will do well in the long-term because "inadequate yields (drive) necessary change." Keay reduced his second-quarter estimate to 18 cents, but did not change his full-year 2015 estimate, in the belief that change is on the way. He has a target price of $15 a share and an outperform rating.

"This is by no means a trading call," Keay wrote in a recent report. "Our thesis is not predicted on 2Q EPS or even second half EPS, but rather change that will likely facilitate material earnings growth and margin expansion in 2015 and beyond."

Keay drew an analogy between JetBlue and Alaska (ALK) because both are being challenged in their hubs by Delta, which has been growing in New York and Seattle. "The two domestic oriented airlines that demonstrably underperformed on June passenger revenue per available seat mile are both under attack by Delta," Keay wrote.

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