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JetBlue Airways Stock Gained ~5% on Citigroup’s Rating Upgrade

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Citi upgrades JetBlue

JetBlue Airways (JBLU) stock rose 4.6% on June 11 after Citigroup (C) turned bullish on the airline and raised the target price as well. Citigroup analyst Kevin Crissey wrote in a note to clients that he thinks the favorable pricing trend and lower fuel prices will benefit the airline in the short run.

The analyst anticipates that given the company’s healthy RASM (revenue per available seat mile) and a massive decline in fuel prices, earnings will rise from the current level. Crissey wrote in his note that “With fuel prices down sharply and unit revenue (RASM) looking healthy, near term EPS estimates are likely headed higher,” CNBC reported.

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JetBlue anticipates its unit revenue to increase in the 1%–4% range in the second quarter. Moreover, its ex-fuel cost per available seat mile (or CASM) are expected to grow in the band of 1.5%–3.5%. The airline projects it will increase capacity by 4.5%–6.5% in the second quarter. Citing the aforementioned factors, Citigroup upped its rating on JetBlue to “buy” from “neutral” and raised the target price by $6.50 to $26.

Long-term prospects

For the longer term, Crissey believes that JetBlue has an enormous opportunity to keep its unit costs flat or may even lower them over the next few years. Crissey argued that Wall Street’s earnings forecast for 2020 is much lower. Analysts polled by Reuters have a consensus EPS estimate of $2.32 for 2020, while JetBlue has set a target between $2.50 and $3.

Crissey, in his note, stated, “Longer term: A different cost trajectory with a better fleet. The huge opportunity is for JetBlue to have flat to down costs over a number of years. However, flat to down unit costs is neither typical nor required for shares to move nicely higher, in our view. Our analysis suggests if JetBlue can become just average relative to industry peers at controlling unit costs, shares could be worth $26.”

Recently, Delta Air Lines (DAL), one of JetBlue’s major competitors, has also received bullish comments from a big investment research company. On June 3, Goldman Sachs (GS) said that Delta would likely outperform the broader market despite global trade concerns. Goldman has put Delta among the list of 12 “crowded” stocks that are popular and heavily held by mutual funds and hedge funds.

Investors can gain exposure to the passenger airline industry by investing in the iShares Transportation Average ETF (IYT), which has allocated 19% of its funds in the space. The ETF has gained 11.5% this year so far.

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