JetBlue stock (NASDAQ: JBLU) has seen a significant decline, currently trading at $6 per share, more than 70% below its peak level of $22 in March 2021. In comparison, United Airlines stock (NASDAQ: UAL) saw a smaller decline of around 20% over the same period. This underperformance can be attributed to headwinds such as elevated fuel prices and some of JetBlue’s aircraft being out of operation due to engine inspections by Pratt & Whitney. The stock is currently trading about 30% below its early June 2022 level of $8, compared to over 45% gains for the S&P 500 during this period.
JetBlue stock has underperformed the broader market in each of the last three years. Returns for the stock were -2% in 2021, -54% in 2022, and -14% in 2023, while the S&P 500 saw returns of 27% in 2021, -19% in 2022, and 24% in 2023. Consistently beating the S&P 500 has been difficult for individual stocks in recent years. In contrast, the Trefis High Quality Portfolio, consisting of 30 stocks, has outperformed the S&P 500 each year over the same period, providing better returns with less risk.
With the current uncertain macroeconomic environment, including high oil prices and elevated interest rates, there is speculation about whether JetBlue may face a similar situation as in recent years and underperform the S&P over the next 12 months, or if it will see a recovery. From a valuation perspective, it is believed that JBLU stock has little room for growth, with JetBlue’s valuation estimated to be $6 per share, aligning with its current market price. A decline in valuation multiple seems justified considering the near-term headwinds.
The timeline of the 2022 inflation shock shows a series of events leading to high inflation rates, peaking at 9% in June 2022. The Federal Reserve’s aggressive rate hikes resulted in market volatility and declines in the S&P 500 index. Currently, the Fed has kept interest rates unchanged to avoid a recession, with potential rate cuts in 2024 and 2025. Comparing this to the 2007/2008 crisis, JetBlue stock declined significantly but eventually recovered post-crisis, similar to the S&P 500 index.
JetBlue’s fundamentals show an increase in revenues but also a rise in reported losses due to higher expenses. The company’s total debt has increased while cash levels have decreased, leading to a high debt-to-equity ratio of 278%. Despite these challenges, with the Fed’s efforts to control inflation and improve market sentiment, there is potential for JetBlue stock to see gains once fears of a recession are alleviated. However, factors such as elevated fuel prices, high debt levels, and operational challenges remain key near-term risks for the company.
In conclusion, while JetBlue stock may be fully valued at present, there is potential for gains in the future. Understanding how JetBlue’s peers fare on important metrics can provide valuable insights for investors. It is important to consider the risks and challenges facing the company, such as high debt levels and operational disruptions, when evaluating its investment potential.
