Started in 1999 at New York’s JFK Airport, JetBlue Airlines (JBLU) is a low-cost airline, and a speculative favorite for the coming year, explains Bruce Kaser, editor of Cabot Undervalued Stocks Advisor.
The company has grown to now serve nearly 100 destinations in the United States, the Caribbean and Latin America. It is only about a third the size of Southwest Airlines (LUV) and about a fifth the size of legacy carriers like United Airlines (UAL), American Airlines (AAL) and Delta Air Lines (DAL).
JetBlue’s low fares and high customer service ratings have built strong brand loyalty. Low costs, including its point-to-point route structure, have helped JetBlue produce high margins, particularly relative to the legacy carriers. Its TrueBlue mileage awards program, which sells miles to credit card issuers, is a recurring source of profits.
While the pandemic has sent the airline industry into a near-term depression, we believe consumers (and eventually business travelers) will return to flying.
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Good news on Covid vaccines, the continued economic recovery, and pent-up demand are already starting to bring back passengers. To help reduce its $6 million/day cash burn, JetBlue is aggressively cutting its costs and benefitting from significantly lower fuel prices compared to a year ago.
Its cash balance of $3.6 billion, bolstered by a recent equity raise, gives JetBlue plenty of time to recover. The company’s $4.8 billion in debt is elevated but reasonable.
While JBLU shares carry higher risks, their discounted valuation of 13.7x estimated (post-pandemic) 2022 earnings and the strong potential for a post-pandemic travel recovery make this discount airliner’s shares attractive.