JetBlue: Zacks’ Bull of the Day Play

Low oil prices continue to provide a significant boost to airlines’ earnings this year. Some stocks in the industry are now trading at very attractive valuations after the recent sell-off but with excellent growth potential, these stocks can be expected to rebound soon.

Based in Long Island City, NY, JetBlue Airways Corporation (JBLU) is a low cost passenger airline that operates primarily on point-to-point routes. It operates an average of 800 daily flights and carries more than 30 million customers a year to 82 destinations in the U.S., Caribbean, and Latin America.

At the end 2014, they had 130 A320s, 60 E190s, and13 A321s aircrafts. The airline is well known for their high-quality customer service and excellent flying experience. Rising estimates sent the stock to Zacks Rank # 1 (Strong Buy).

Solid Second Quarter Results and Rising Estimates

The company’s Q2 2015 adjusted net income of $152 million or $0.44 per share, was almost double from the same quarter last year (excluding the sale of LiveTV). Total revenues were up 8% from the prior-year quarter while operating margin increased by more than 8% to 17.5%.

According to the management, low oil prices played a major role in the results, with realized average fuel price of $2.13 per gallon for the quarter, down 31% year-over-year. They expect their Q3 fuel price to be approximately $1.95 per gallon (including the impact of taxes and hedges). They have hedged about 17% of their expected 2015 fuel consumption.

Earlier in May, JetBlue received its 11th consecutive customer satisfaction award from J.D. Power with the highest score ever by any U.S. airline.

Analysts have raised their estimates for JetBlue in the past few weeks after strong results. Zacks Consensus Estimates for the current and next year are now $1.86 per share and $2.06 per share, up from 1.77 per share and $1.94 per share, before the results.

Zacks Industry Rank for “Airlines” is currently 56 out of 265 (top 21%) reflecting improving fundamentals for the industry.

Excellent Growth Potential with Attractive Valuation

In addition to a top Zacks rank, the stock has a Value Style Score of “A” and Growth Style Score of “B”. It is currently trading at an attractive multiple of 12.06 times F1 earnings. Further, earnings are expected to grow 128.75% and 81.25% year-over-year for the current and the next quarter. For next year also, earnings are expected to continue growing in double digits, per current consensus estimates.

The Bottom Line

With its differentiated culture, competitive costs and high value geography, the airline looks well positioned to continue to grow and reward its shareholders. Further, the industry will continue to benefit from improving economy and growing demand for air travel, in addition to tailwinds from low fuel prices.

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