Consensus Builds That JetBlue Has Risen Enough

After jumping more than 50% in three months, shares of low-cost upstart JetBlue Airlines ( JBLU) were downgraded on valuation concerns Monday. Meanwhile, Lehman Brothers had good things to say about Southwest Airlines ( LUV).

Bear Stearns analyst David Strine dropped JetBlue to peer perform from outperform, telling investors the company had reached his price target of $37, but stressing the downgrade had nothing to do with business fundamentals. Raymond James analyst James Parker downgraded JetBlue to outperform from strong buy on Friday afternoon because the stock was nearing his price target of $41.

In recent weeks, JetBlue shares have been pushing higher, because the company announced an ambitious plan to expand its fleet with a $3 billion purchase of 100 Embraer 190 jets.

But the company also owns an option to double that order, and that has given rise to concerns that it was expanding too fast and risking the same mistakes that helped kill People Express.

Both analysts stressed that JetBlue's business was on the right track. "It is important to note that this downgrade does not reflect a belief that the business model is less attractive because of the ERJ 190 order or that we perceive any missteps in the execution of the growth strategy," said Strine. "The change is solely due to valuation."

Likewise, Raymond James' Parker told investors, "Our rating downgrade reflects no deterioration in JetBlue's favorable growth outlook. Based on aircraft orders, we estimate JetBlue's capacity will grown about 38% compounded annually over the next four years and its EPS should grow approximately in line with capacity growth due to its low unit costs."

JetBlue shares dipped on the downgrade, falling 86 cents, or 2.2%, to $38.09.

Elsewhere, Lehman Brothers analyst Gary Chase was out with glowing comments on Southwest's ongoing expansion into the long-haul, transcontinental market dominated by bigger carriers like UAL ( UALAQ) unit United Airlines. On Monday morning, the analyst maintained his overweight rating on the stock, telling investors that the airline's rapid expansion from Baltimore has been a success.

"We were admittedly surprised at the speed at which Southwest's Baltimore to Los Angeles service ramped up. Ninety percent load factors are atypical at any stage, much less in the first month of service," said Chase. "We believe that Baltimore to San Jose will also be a strong market for Southwest."

The positive comments bode well for Southwest, which, like JetBlue, has been criticized for expanding into markets where low-cost carriers haven't traditionally thrived. At the beginning of the year, Southwest began flying between Baltimore and San Jose, and next month starts flying between Baltimore and San Diego, which will be expanded three months later, in October.

Southwest shares were weaker, along with the rest of the airline industry, sliding 19 cents, or 1.1%, to $17.05.

As originally published, this story contained an error. Please see Corrections and Clarifications.

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