On Tuesday, UBS resumed coverage on JetBlue Airways (NASDAQ:JBLU), issuing a Sell rating and establishing a price target of $5.00. The firm expressed concerns over the airline's financial outlook, citing capacity constraints and high inflation as significant challenges. UBS believes these factors have set expectations for revenue per available seat mile (RASM) growth too high for JetBlue to realistically meet.
According to UBS, JetBlue is expected to face a tough year ahead with the anticipation of flat growth in available seat miles (ASM) and mid-single-digit percentage growth in cost per ASM excluding fuel (CASM ex). The firm suggests that in order for JetBlue to achieve its objective of a break-even or better operating margin (OM) for the year 2025, it would need to attain a RASM growth well into the mid-single-digit percentage range, assuming around 6% growth in CASM-ex.
The analysis by UBS projects a RASM growth of approximately 4.5%, which leads to an estimated operating margin of -0.9% for 2025. This estimation still marks an improvement from the roughly 3% organic RASM growth expected in the second half of 2024. However, UBS points out that the competitive capacity on JetBlue's key routes from New York and Florida to Latin America has increased by 15-30% in 2024 compared to 2019, which could make the necessary RASM acceleration more difficult to achieve.
UBS concluded its assessment by stating that the combination of these factors presents downside risks to JetBlue's financial estimates in the upcoming periods. The firm anticipates that these risks are likely to maintain downward pressure on the stock.
In other recent news, JetBlue Airways faced major developments. Goldman Sachs (NYSE:GS) resumed coverage on JetBlue with a Sell rating due to persistent operational challenges and higher-than-industry leverage. The airline's challenges include grounded aircraft due to necessary accelerated engine maintenance and air traffic control staffing shortages.
JetBlue also had to suspend all flights to and from Haiti due to recent security instability, following a Federal Aviation Administration prohibition. Moreover, JetBlue's partnership with American Airlines (NASDAQ:AAL) was deemed anticompetitive, a ruling upheld by a U.S. appeals court.
Citi revised its outlook on JetBlue, reducing the price target but recognizing the potential of JetBlue's strategic initiative, JetForward. However, the firm emphasized the need for JetBlue to demonstrate a more defined route toward consistent and positive free cash flow. In the third quarter of 2024, JetBlue reported a five-point increase in its operating margin year-over-year and a 4.3% rise in unit revenue. Despite a projected decrease in Q4 capacity and revenue, JetBlue anticipates positive unit revenue trends.
InvestingPro Insights
The recent UBS analysis aligns with several key metrics and insights from InvestingPro. JetBlue's financial challenges are reflected in its current market capitalization of $2.12 billion and negative earnings indicators. The company's P/E ratio stands at -2.48, with an adjusted P/E ratio of -5.72 for the last twelve months as of Q3 2024, indicating ongoing profitability issues.
InvestingPro Tips highlight that JetBlue "operates with a significant debt burden" and "may have trouble making interest payments on debt," which corroborates UBS's concerns about the airline's financial outlook. Additionally, the tip that JetBlue is "quickly burning through cash" supports the challenges mentioned in achieving break-even or better operating margins.
The company's revenue of $9.327 billion for the last twelve months as of Q3 2024 shows a slight decline of 3.89%, which aligns with UBS's projections of flat growth in available seat miles. The operating income margin of -1.59% further underscores the difficulties JetBlue faces in achieving profitability.
Investors seeking a more comprehensive analysis can access 11 additional InvestingPro Tips for JetBlue, providing a deeper understanding of the company's financial position and market performance.
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