On Tuesday, Deutsche Bank (ETR:DBKGn) altered its stance on JetBlue Airways (NASDAQ:JBLU), upgrading the airline's stock from Hold to Buy. The firm has also doubled the price target from $4.00 to $9.00. The adjustment reflects a positive outlook on the company's potential, influenced by recent changes in management and governance.
The new price target is based on a revised earnings valuation, with Deutsche Bank applying approximately 5x EV/EBITDAR multiple to JetBlue's 2024 EBITDAR estimate and about 4x to the 2025 EBITDAR estimate. These multiples are an increase from previous valuations, signaling a stronger confidence in the airline's financial prospects.
The bank's analyst cited the recent strategic changes at JetBlue, including the appointment of new senior executives and the involvement of an activist investor who has secured two seats on the Board. These developments are considered beneficial for the company's stock performance.
Moreover, Deutsche Bank highlighted JetBlue's substantial unencumbered assets, estimated at around $11 billion. This valuation includes $7.5 billion attributed to the airline's loyalty program and brand, $1.9 billion to its fleet of approximately 100 unencumbered aircraft, and $1.6 billion to other assets such as real estate and flight operation essentials.
Despite the optimistic revision, the analyst noted that the airline still confronts challenges, including the ongoing legal battle over its attempted merger with Spirit Airlines (NYSE:SAVE) and issues with GTF engines that are expected to ground an average of 11 aircraft throughout 2024. Nonetheless, even with these hurdles, the target multiple remains below the historical mid-cycle trading range of 6x to 8x forward EV/EBITDAR for JetBlue.
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