BOSTON (TheStreet) -- TheStreet's stock model upgraded JetBlue Airways (JBLU) - Get JetBlue Airways Corporation Report to "hold" this week. But while the airline's fortunes are on the rise, risks may buffet the company.
JetBlue's stock has risen 10% in the past month, outperforming those of larger rivals
, but trailing shares of
Delta Air Lines
. Airline stocks have attracted hedge-fund investors, including David Tepper of
. Still, sluggish growth and thin profit margins are reasons individual investors should avoid JetBlue.
JetBlue swung to a fourth-quarter profit of $11 million, or 4 cents a share, from a loss of $58 million, or 25 cents a share, a year earlier. The operating margin expanded from 6% to 7.7%. Revenue grew 2.6% to $832 million. JetBlue's cash balance nearly doubled to $1.1 billion, though debt rose 4.7% to $3.3 billion, translating to an excessive debt-to-equity ratio of 2.1. Return on equity and return on assets, measures of profitability, stalled in the low single digits.
JetBlue exceeded analysts' expectations by a margin of 38% for adjusted earnings per share and 82% for GAAP earnings per share. Sales met the mean forecast.
Opinion is mixed among researchers, with seven rating JetBlue "buy" and seven "hold."
Raymond James Financial
expect the stock to advance 41% to $8.
believes the stock will hit $7. Barclays' risk disclosure notes that "airline stocks have historically underperformed broader-market averages by significant margins when measured over long periods of time."
A risk endemic to airlines is a spike in the cost of jet fuel. If inflation ramps up quicker than expected, U.S. dollar-denominated commodities like crude oil will pop. Jet fuel is linked to crude. Oil surged to a 17-month high yesterday, jumping more than 2%. Though airlines hedge fuel costs, an unanticipated change would prompt analysts to dim their profit outlook.
In the latest reporting period,
, JetBlue's largest shareholder, lowered its holdings by 2.7% to 15% of shares outstanding.
, the third biggest, increased its bet to 7% of the float, and
added another 446,910 shares.
, a quantitative hedge fund started by prize-winning mathematician James Simons, cut its position by 18% to 1.3% of shares outstanding.
JetBlue's February traffic failed to impress. It grew 2.7% from a year earlier due to a capacity expansion. Load factor, a measure of the available seating capacity filled with passengers, was unchanged at 75% and the number of departures fell by 1%. A consumer-related rebound appears muted. Individual investors weighing an investment in JetBlue are advised to proceed with caution. The stock has fallen an average of 21% a year since 2007. Over a one-year span, JetBlue has risen 28%, less than U.S. indices.
-- Reported by Jake Lynch in Boston.