Take a look at the P&L, Gross margins are great. SG&G are a big chunk but that is coming down as % of revenue. The merger with Trulia could bring the relative overhead down significantly. Now it has reached critical mass and market share is important.
It is important to anticipate in investing. Not sit on your horse backwards looking what went by. Turn the saddle around and see what is coming ahead for you.
I agree with your strategy. I have avoided airlines in the past because of poor pricing power, hi fuel costs, hi debt. I did buy JBLU around $14-15 and it was a large position. Sold 90% on the way up to $17/s and kept 10% as a longer term position.
After a nice run since 2009, I keep a large position in cash. May be the market will continue rising. Just that I can afford a huge hit. Nor do I want to get stuck through a long down cycle.
Much of the short interest of nearly 15M shares, or 50% of the float is intact. May be reduced by 2M shares. With the Fed keeping interest rates low, and valuations for intermediary companies like Uber, etc, Zillow has the potential to exceed the high of $160/s.
Zillow and Trulia will not only benefit from economies of scale, reduced costs, but also from the network effect. Listings, brokers, banks will go to the site with the biggest number of customers. Trulia software is actually better than Zillow, imo.
The real estate biz still have hi transaction costs and that will come down. Zillow+Trulia may be the dominant player in this space.
Besides taking advantage of low price of jet fuel, Jblu has to focus on operation efficiency. Increased point to point flights, less dependency on NE, increased presence in the South and West without getting killed by competition. The company is packing more seats, while keeping seat pitch nearly constant. Reducing weight, increasing fuel efficiency. All are being done.
Anyway, I think the airline stocks are mispriced on the low side.
About 20% of JBLU float is short. That is huge and difficult to cover. If price of oil stays below $50/b and ticket prices stable as it has happened so far, EPS could nearly double. Probably happen during 2nd, 3rd quarter travel seasons. Blowout earnings would force shorts to cover. Overshoot stock to $20/s in that time frame.
Impressive metrics with steady growth in capacity, load factor, etc. It looks like fuel costs have dropped some, but not fully reflected due to timing and hedges. Unless we get a recession, the stock should do well. Let us hear the guidance.
Looking a most airline earnings, the analysts have got it right almost within a penny. With monthly data and estimates of jet fuel it is straight forward math. I am guessing that JBLU will meet estimates within a penny. Most of the savings from fallen jet fuel price will show up in the spring and summer time frame.
Meanwhile, stock price may pull back like AAL after earnings.
I do not think that the fall of crude oil price has been fully reflected in the airline stocks. There is a general belief that oil will bounce back to close to $100/B. Then the airline carry hedges that are underwater. Many have excessive debt. Then there is the risk of falling ticket prices. All this has to be discounted over time.
A lot of the move up on these stocks has been priced in. At this point, expect very few upward surprises.
I have both, JBLU, LUV, besides side bets in UAL, AAL, I think that JBLU is relatively undervalued with low expectations of flat EPS sequentially. Hi short interest of 21.5% or 48M shares. I think it is best to spread yor money around. Go with the best managed companies.
Southwest has the right strategy. They have standardized on the airplanes with the 737, controls, pilots ratings, parts, maintenance. No complicated seating arrangements. No complicated baggage fees or other nickel and dime charges. Last but not the least, among the highest passenger satisfaction scores in the industry. Low debt that will be paid off soon.
Now they are expanding to Latin America. Revenues should grow nicely.
Expectations for JBLU are low. May be make 26 cents/s versus may be 25 cents last Q. Guidance was lame, including relatively hi fuel costs with only 25-30% of the fuel hedged. Meanwhile, jet fuel price fell by almost 50% in the last 6 months. Few analysts follow this stock with a low market cap. Look at this board, most of the time it is dead. Oh yea, 21.5% of the float (48M shares!) has been borrowed by the shorts and sold as of Dec-31... that is the equivalent of having a tombstone on the company saying RIP.
I am long JBLU, SUV (recent), AAL, UAL.
Everybody is betting that oil prices will spike. That is why long term futures are hi. Oil company stocks like XOM, CVX are still close to all time highs. Airline forward PEs are low, especially the big airlines. Until recently few analysts were positive on airlines. Now they are barely positive.
Sooner or later the market will wake up and smell the coffee and realize that low oil prices are here to stay. This is not a financial crisis like in 2007-9. It is about structural changes in supply and demand.
Most of these hedge funds day to day operations are run by some 24-30 year olds artsy majors who can not tell what kind of fuel goes into these airplanes, lbs/hr, etc. 21.5% of JBLU is short, or nearly 45M shares! Even if part of a pair trade, hedge, it is going to hurt. EPS estimates are low at 26 cents with lowball guidance.
I thought about that too. I am thinking some hedge fund went short JBLU and long other faster growing airlines like SAVE, ALGT, LUV, ALK, HA, etc. JBLU has a history of messing up during the winter due to storms, etc. Another possibility would be an option play, but there is not enough option open interest for this kind of play.
Regardless, with oil prices drifting lower and if the airlines move up, the hedge players will have to cover their short position sooner or later. We will find out soon, especially if AAL has blowout earnings.
JBlu got among the highest short interest, if not the highest, among the airlines. As of Dec-31 it 21.5% of the float or nearly 45M shares. Fares have been stable while jet fuel prices have fallen close to 40% in the last quarter. About 25-30% of fuel was hedged, but they are expiring. Earnings will rise as demand is there with growing economy. Ticket prices are stable.
Expect a short squeeze soon!
What is the beef with Cuba all these years? They let people visit Russia, China plus most of the Axis of Evil countries. Cuba is a pipsqueak country.
The airline stock prices are discounting risks:
- oil price spikes back to $100/b
- ticket prices fall due to competition
- economy slow, traffic down
I do not have expertise in airlines, but here is my view. JBLU spent $515M in fuel in last 2014Q3 with crude at $95/B average. May be only 25% of fuel is hedged for Q4. Best guess for average crude oil in 2014Q4 is (90+55)/2 or $72.5. So the drop is % drop is (95-72.5)/95 = 23.7%. Estimated fuel savings = $515, Tax rate = 40%. Gross fuel savings = $122M. Net AFIT fuel savings = $122*0.6 = 73M. Diluted shares 341M. Net savings per share = $0.21/s. 214Q3 EPS dilited = $0.24. Estimated EPS based on 2104Q3 operations, with lower fuel cost = $0.45/s.
Annualized static estimate EPS= $1.80. Fuel prices have since fallen. Then there a rolling hedges effect, JBLU has actually been increasing revenues, utilization, at least in November. Clueless where oil prices will go. With a low ball PE of 10, stocks should be around $18/s.
Airlines have a bad reputation as investments, thanks to Warren Buffet and multiple bankruptcies in the past. However, consolidation, bankruptcies, termination of onerous labor costs, plus nickel and dimming the consumer with fees for baggage, food, drinks, seating, leg room, boarding preference, etc the airlines were making a ton of money even with $100/B WTI. They also got rid of their clunker airplanes..
Risks are price wars, but the economy is doing good. Hope the airlines do not add capacity recklessly. WTI could spike, etc. Meanwhile WTI is collapsing and so are the airline stocks, while economy is doing ok. I think JBLU is mispriced by at least $4. Then there is a huge short interest that is 20% of the float. If they beat estimates big, shorts have to cover in a hurry, especially with falling WTI. Not enough shares around due to low volume.