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). 

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) 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.

"Delta's competitive incursions last year prompted Alaska to move aggressively on commercial initiatives prior to Alaska's stock doubling," he wrote. "We think Delta's incursions in JetBlue's markets could prompt a similar response, and JetBlue has more low hanging fruit to pull, in our view."

Barclays Capital analyst David Fintzen reduced his second-quarter estimate to 19 cents from 21 cents. He wrote in a report that "20% of JBLU capacity is 'near-international'" (most international exposure in our coverage after United, Delta and American (AAL) ) and that JetBlue's growth "comes in markets seeing fairly sizable capacity growth this summer."

Nevertheless, CRT Capital analyst Mike Derchin recently increased his price target to $13.50 from $12; he rates JetBlue a buy. "While JBLU's cost structure is higher than ultra-low cost carriers that operate 'no frills' services, its unit costs are considerably below network carrier levels." He too estimates earnings of 19 cents.

-- Written by Ted Reed in Charlotte, N.C. 

To contact this writer, 
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Follow @tedreednc

Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.

TheStreet Ratings team rates JETBLUE AIRWAYS CORP as a Buy with a ratings score of B. TheStreet Ratings Team has this to say about their recommendation: 

"We rate JETBLUE AIRWAYS CORP (JBLU) a BUY. This is driven by a number of strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its solid stock price performance, revenue growth, good cash flow from operations and notable return on equity. We feel these strengths outweigh the fact that the company has had sub par growth in net income."

Highlights from the analysis by TheStreet Ratings Team goes as follows:
  • Compared to its closing price of one year ago, JBLU's share price has jumped by 57.94%, exceeding the performance of the broader market during that same time frame. Turning to the future, naturally, any stock can fall in a major bear market. However, in almost any other environment, the stock should continue to move higher despite the fact that it has already enjoyed nice gains in the past year.
  • The revenue growth significantly trails the industry average of 43.9%. Since the same quarter one year prior, revenues slightly increased by 3.8%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
  • JETBLUE AIRWAYS CORP has experienced a steep decline in earnings per share in the most recent quarter in comparison to its performance from the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, JETBLUE AIRWAYS CORP increased its bottom line by earning $0.51 versus $0.39 in the prior year. This year, the market expects an improvement in earnings ($0.66 versus $0.51).
  • Net operating cash flow has significantly increased by 57.07% to $322.00 million when compared to the same quarter last year. Despite an increase in cash flow, JETBLUE AIRWAYS CORP's average is still marginally south of the industry average growth rate of 64.92%.
  • The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. When compared to other companies in the Airlines industry and the overall market, JETBLUE AIRWAYS CORP's return on equity is below that of both the industry average and the S&P 500.

-- Written by Ted Reed in Charlotte, N.C. 

To contact this writer, 
click here

Follow @tedreednc

Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.

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