Jet Blue (JBLU)

air

Key Statistics

Enterprise value = $6.361 billion

Operating Income = $981 million

EV/Operating Income = 6.48x

Price/Revenue = .84x

Earnings Yield = 19%

Debt/Equity = 24%

The Company

JetBlue is a low cost airline with a focus on North America. They fly throughout North America, but their major focus is New York, Florida and Boston. They are headquartered in Long Island City just outside of New York. JetBlue made the somewhat crazy decision of entering the airline business in 1998. I don’t know how anyone in 1998 could look at this history of the business and say “this is an awesome industry, I’d like to get involved!” With the terrible industry economics taken into consideration, JetBlue has succeeded in a brutally tough market. They did this due to their focus on low costs and providing a high level of customer service.

Sentiment

Airlines are a terrible business and most investors are reluctant to invest in them. It is an industry marked by brutal competition, bankruptcy, and recurring public relations nightmares. Fuel prices are a major problem for the industry and cause most of the earnings volatility. Crude oil is up 59% in the last year. As a result, JetBlue’s stock is down 15% despite the meteoric rise in the S&P.

My Take

I own three airlines right now: Hawaiian Airlines, Alaska Airlines, and JetBlue is my latest position. I’m following Warren Buffett’s lead here. Berkshire’s take is that the airline business has changed. It is no longer as brutally competitive as it used to be and is settling into an oligopoly with steadier profits that will grow with nominal GDP.

Buffett is concentrating on larger cap fare and I am focusing on smaller airlines that are statistically cheap and have little debt. They also have less debt than they used to, which was a frequent cause of the industry shake ups. Not only are the smaller airline names cheaper, they also lack the pension obligations and labor battles that plague the more established names.

JetBlue is unique in my portfolio as it is one of the few names that is actually growing. They have been growing their business steadily and impressively for years. JetBlue’s revenues are up over 200% in the last 10 years and earnings have advanced impressively as well, though they have been choppy in the last few years. Despite the rise in crude, earnings have not only been positive for the last year, but have been growing. The market seems to have overreacted to the move in oil while fundamentals haven’t deteriorated. With an F-Score of 7 and Z-Score of 2, a low debt/equity ratio, there are no signs of financial distress.

In short, Jet Blue is performing well while the price reflects the kind of anxiety that makes sense with my retail stocks, but doesn’t make any sense here. The risk is that oil continues its ascent, but fortunately I have positions that will benefit from a rise in oil should that continue (ERUS, ENOR, GBX).

PLEASE NOTE: The information provided on this site is not financial advice and it is for informational and discussion purposes only. Do your own homework. Full disclosure: my current holdings.  Read the full disclaimer.