Should you buy the dip?

Shares of the airline based in Long Island City, NY JetBlue Airways Corporation (JBLU) they haven’t had a good time in the stock markets lately, falling by double digits in the last 180 days. The disappointing price performance led to an underperformance of JBLU’s industry over the mentioned time frame, as well as the S&P 500, of which the airline is a key member. In addition, JBLU’s price performance compares unfavorably with that of other US carriers United Airlines UAL and Alaska Air Group, Inc. ALK in the same time frame.

Three-month price comparison

Image source: Zacks Investment Research

Currently trading at $4.87, the stock has returned 42.39% from its 52-week low of $3.42 on October 31, 2023. However, it still reflects a 35.75 discount % from the 52-week high of $7.58 reached on April 22nd.

In fact, JetBlue Airways shares are down 71.9% over the past five years.

With JBLU stock currently down significantly, investors may be tempted to pick up the stock. But is this the right time to buy JBLU? Let’s find out.

JBLU guidance for the current quarter and full year

Last month, despite reporting better-than-expected revenue and earnings in the second quarter of 2024, JetBlue Airways posted a year-over-year decline in revenue. The fall was due to air traffic control problems in the Northeast, which hurt the company’s passenger revenue.

To that end, JBLU issued disappointing revenue guidance for the third quarter of 2024 and for the full year of 2024. For the third quarter of 2024, total revenue is forecast to decline in the range of 1.5-5.5%. For 2024, total revenues are forecast to decline between 4% and 6%.

Capacity (measured in available seat miles) for the third quarter of 2024 is now expected to decline in the 3-6% range. For the full year 2024, capacity is expected to decrease in the range of 2.5-5%.

Rising expenses weigh on JetBlue Airways stock

In addition to revenue and capacity issues, an increase in labor and airport costs is also likely to affect profit growth, leading to an increase in operating expenses. Obviously, operating expenses increased by 7.2% in the first half of 2024.

The increase in operating expenses was caused by an increase in labor costs and fuel expenses. Salaries, wages and benefits expense increased 6.2% in the first half of 2024 compared to actuals in 2022. Consolidated operating costs per available kilometer (excluding fuel and special items) increased 5.4% from year-over-year to 10.40 cents in the first half of 2024. For the third quarter of 2024, CASM, excluding fuel and special items, is expected to grow 6-8% year-over-year. For 2024, CASM, excluding fuel and special items, is expected to grow in the 6.5-8.5% band.

Ongoing production cuts by major oil-producing countries and geopolitical tensions are raising fuel costs. As fuel expenses are a key entry cost for any airline player, an increase in these costs naturally does not bode well. Notably, the economic cost of fuel per gallon increased by 5.1% in the second quarter of 2024 to $2.87. For the third quarter of 2024, the economic fuel price per gallon is expected to be between $2.82 and $2.97 per gallon, which is in line with the figure reported in the second quarter. Our estimate is currently pegged at $2.91 per gallon.

We are also concerned about JBLU’s high level of debt. The low-cost carrier’s long-term debt level rose to $5 billion at the end of the second quarter of 2024, from $3.1 billion at the end of 2022.

Long-term debt to capitalization

Image source: Zacks Investment Research

Given the headwinds against the stock, the Zacks Consensus Estimate for the third-quarter 2024 loss rose to 42 cents from 19 cents in the past 60 days.

Some tailwinds

We are impressed by the company’s efforts to modernize its fleet. The decision to introduce its highly successful premium service, Mint, from Newark Airport is a positive addition. Management expects to save $75 million from the fleet modernization program by the end of 2024.

From a valuation perspective, JBLU trades at a discount to the industry, going by its trailing 12-month price-to-sales ratio. The reading is also below the median of the past five years. The company has a Value Score of B.

Image source: Zacks Investment Research

To conclude

JBLU stock is understood to be attractively valued. However, given the headwinds mentioned above, we think it is not at all advisable to buy a discount in this Zacks Rank #3 (Hold) stock until the company demonstrates a substantial improvement in its performance. We believe investors should closely monitor the company’s developments for an appropriate entry point. For those who already own the stock, it will be prudent to stay invested. The Zacks Rank of the stock supports our thesis.

You can see full list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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