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Don’t Sell JetBlue Airways (JBLU) Stock Now — Here’s Why

Zacks

On Sep 8, we issued an updated research report on key low-cost airline, JetBlue Airways Corporation JBLU.

The stock has performed disappointingly so far this year. The stock lost 16.6% while its industry gained 7.8% on a year-to-date basis.

Why the Slide?


JetBlue has been hurt by multiple headwinds leading to the above underperformance. High costs are expected to negatively impact the bottom line in the third quarter. Also, while releasing its second-quarter results in July this year, the company stated that unit costs, excluding fuel, are expected to grow in the band of 1.5% to 3.5% for the same period.

Adding to its woes, the carrier recently provided a bearish view on operating revenue per available seat miles (RASM) for the third quarter. JetBlue now expects RASM in the band of -1% to +1% (on a year-over-year basis). The earlier projection had called for the metric between -0.5% and + 2.5%. The company attributed the reduction in the guidance to the prevalent competitive pricing environment. JetBlue also trimmed its capacity growth projection to the range of 6% to 7% range from 6.5% to 7.5%, projected earlier.

Moreover, Irma is likely to hit JetBlue hard because it has significant exposure to Florida with two hubs in the state, Orlando and Fort Lauderdale. The company also has a hub in Puerto Rico.

Notably, JetBlue is not the only one to slash its unit revenue forecast. Fellow-carriers like Southwest Airlines LUV and United Continental Holdings UAL have trimmed their respective current-quarter unit revenue forecasts.

Certainly Not a Broker Favorite

Given the challenges faced by the company, it is natural that the stock is not a brokers’ favorite right now. The stock has witnessed the Zacks Consensus Estimate for current-quarter earnings being revised 3.2% downward over the last 30 days. Also, for full-year 2017, the Zacks Consensus Estimate moved down 1.5% in the same time period.

Given the wealth of information at the disposal of brokers, it is in the best interests of investors to be guided by broker advice and the direction of their estimate revisions. The direction of estimate revisions serves as an important pointer when it comes to the price of a stock.

Some Positives Remain

JetBlue's efforts to expand its popular premium service (Mint), however, raise optimism in the stock. The carrier intends to operate 70 Mint flights by Dec 31, 2017. In fact, it aims to offer the service for approximately one out of 14. We are also impressed by the company's efforts to modernize its fleet.

Efforts to reduce debt levels are also encouraging. Furthermore, the carrier's deal with Goldman Sachs for implementing an accelerated share buyback program is another positive.

Due to the positives, we believe dumping the stock now will be foolhardy despite its recent struggles.

Additionally, the Zacks Rank #3 (Hold) carried by the stock is a confirmation that investors should currently hold on to the stock as it is expected to perform in line with the broader market over the next one to three months.

Stock to Consider

Investors interested in the airline space may consider SkyWest Inc. SKYW sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

SkyWest witnessed the Zacks Consensus Estimate for current-year earnings being revised 1.9% upward over the last 60 days.

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