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JetBlue’s Valuation: What’s Priced In?

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Current valuation

Currently, JetBlue Airways (JBLU) is valued at 5.8x its forward EV/EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization) multiple. This valuation is lower than its average valuation of 7.2x since September 2009.

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Peer comparison

American Airlines (AAL) and Alaska Air Group (ALK) are trading at similar valuations of 6.7x and 6.4x, respectively. They’re followed by Southwest Airlines (LUV) at 6.5x and Spirit Airlines (SAVE) at 6.1x. United Continental (UAL) is trading at 5.5x and Delta Air Lines (DAL) is trading at 5.1x.

The market is expecting JBLU to record EBITDA per share growth of -8% in the next year. AAL’s EBITDA is expected to fall 0.1%. UAL’s EBITDA is expected to fall 4%, and DAL is expected to fall 2.9%. ALK’s EBITDA is expected to grow 13%, SAVE’s 11.5% and ALGT’s 0.7%.

Our analysis

JetBlue’s high-value geography, maturing markets, and premium product have helped it grow in the past. It operates in airports with controlled gates and slots, limiting competition. JBLU’s low-cost structure and strong domestic presence position it well to outperform peers. These factors, along with its innovative services like Mint, could help the company grow.

Short-term multiples should be impacted by JetBlue’s ability to perform as per its unit revenue guidance. JBLU’s ability to turnaround its yield performance and maintain leverage at the same time will likely be key to changing valuation multiples in the short term. Plus, if fuel costs continue to rise and airlines aren’t able to pass them on, they will likely impact valuation multiples.

JBLU forms ~0.45% of the iShares Core S&P Mid-Cap ETF (IJH).

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