Insights

Why JetBlue Stock Is Flying High Today

What happened

A day after shares of JetBlue Airways (NASDAQ: JBLU) fell following disappointing earnings and guidance, the stock is bouncing back nicely on some positive analyst commentary, up 6% as of 3:11 p.m. ET on hopes that continued strong demand for air travel can offset a tricky cost environment.

So what

JetBlue’s second quarter gave little reason for investors to get excited. The company lost more money than analysts had expected on revenue that came in slightly under expectations, and JetBlue warned that cost pressures are likely to continue through the rest of the year.

But it is notable that the revenue, though below expectations, was still up 16% compared to the same three months of 2019. And strong demand for air travel seems to be holding steady despite inflation fears, giving airlines pricing power heading into the remainder of the year.

Although acknowledging the near-term challenges, Wall Street has not soured on JetBlue post-earnings. Deutsche Bank analyst Michael Linenberg lowered his price target on the shares to $10 but kept a buy rating, saying strong demand should drive a return to profitability in the current quarter.

Similarly, Helene Becker at Cowen kept JetBlue as an outperform but lowered her price target to $10, calling the post-earnings sell-off “a buying opportunity for longer-term investors.”

Now what

There’s hope for JetBlue, but as the lowered price targets suggest, the stock is unlikely to really gain altitude for some time.

In addition to cost concerns including labor and fuel prices, JetBlue earlier this month agreed to acquire Spirit Airlines. The deal, if completed, would help ease JetBlue’s pilot and aircraft worries, but will take up to a year to close and then years more to integrate.

JetBlue’s management has the pieces of the puzzle, but it will take some time to put it all together. Until then, investors should expect JetBlue to be relatively range-bound, trading up and down more on hints about the macro environment and updates on the merger instead of individual-company results.

Lou Whiteman has positions in Spirit Airlines. The Motley Fool recommends JetBlue Airways. The Motley Fool has a disclosure policy.

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