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JetBlue's Happy Jetting?: Under the Radar

JetBlue is flying straighter, but there are risks on the horizon.
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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

US Airways

(LCC)

and

UAL Corp.

(UAUA)

, but trailing shares of

Delta Air Lines

(DAL) - Get Delta Air Lines, Inc. Report

. Airline stocks have attracted hedge-fund investors, including David Tepper of

Appaloosa Management

. 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."

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TheStreet Recommends

Raymond James Financial

(RJF) - Get Raymond James Financial, Inc. Report

and

Barclays

(BCS) - Get Barclays Plc Report

expect the stock to advance 41% to $8.

Citigroup

(C) - Get Citigroup Inc. Report

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,

Fidelity Management

, JetBlue's largest shareholder, lowered its holdings by 2.7% to 15% of shares outstanding.

Wellington Management

, the third biggest, increased its bet to 7% of the float, and

Vanguard

added another 446,910 shares.

Renaissance Technologies

, 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.

View the Under-the-Radar Portfolio

-- Reported by Jake Lynch in Boston.