JetBlue (NASDAQ:JBLU) has climbed to higher altitudes since beating first-quarter earnings. This earnings beat came as higher costs have taken their toll on profits during the quarter. However, in future quarters, JetBlue looks poised to return to growth, and this should finally lead to a sustained increase in the value of JBLU stock.
JetBlue Beat on Earnings, Met Estimates on Revenue
Source: Josh Hallett Flickr
For the first quarter, the company reported 16 cents per share in earnings. Though that comes in well below the 27 cents per share of Q1 2018, it also beat consensus estimates for Q1 2019 by 4 cents per share. Analysts had expected the lower earnings due to rising operating and fuel costs for the Long Island City, New York-based airline.
They also cited lower revenue growth. Still, on revenues, the company met Wall Street expectations, bringing in the predicted $1.87 billion. Revenues climbed 6.4% from year-ago levels of $1.75 billion. Revenue had increased by double-digit levels in the previous two quarters. Despite these numbers, it appears that Wall Street correctly saw this quarterly setback as temporary. In the two days after the quarterly report, share prices soared, with JBLU stock surging higher by about 8% in that time.
JBLU stock remains in a long-term slump
Still, the setback that has not proven temporary involves the long-depressed state of JBLU stock. JBLU currently trades at levels first seen in 2003! Granted, the higher levels in 2003 came soon after its IPO. Yet, since that 2002 IPO, revenues have grown more than tenfold. The size of its fleet has risen to 253 planes, up from just 37 in 2002. This growth led to average profit increases of 32.74% per year in just the last five years alone. Over the next five years, they still expect to see earnings grow by an average of 15.42% per year.
However, despite rising profits, the forward price-to-earnings (PE) ratio stands at just under 8.3. While this might appear low by S&P 500 standards, it presents a problem for JBLU stock. In recent years, the airline industry has not commanded high or even average PE ratios. The forward multiple for Southwest (NYSE:LUV) comes in at 10. Spirit (NYSE:SAVE) trades at 8.7 times earnings. United Continental (NYSE:UAL) supports a PE of just under 7.3. Hence, JBLU stock investors may have to adapt to a lower valuation.
The Case for JBLU Stock
Still, longs still have a case for optimism. Analysts predict 16.8% earnings increases for this year and 21.5% for 2020. Even if the forward PE remains in the single digits, these growth rates should lead to a decent return on JBLU stock.
Moreover, JetBlue flies only large passenger planes made by Airbus (OTCMKTS:EADSY) and Embraer (NYSE:ERJ) regional jets. Hence, Boeing’s (NYSE:BA) 737 MAX issues do not affect the airline. Thanks to groundings of the 737 MAX, the lower supply of seats will allow the airline to raise fares without seeing any cuts in capacity.
Furthermore, expansion continues as JBLU announced that it would begin flights to London. This will serve as JetBlue’s first European destination. This expanding capacity, along with continued profit growth should help to boost JBLU stock.
Final Thoughts on JBLU Stock
JBLU stock finally looks poised to break out of its long-time slump. JBLU surged higher as the company beat earnings. However, despite rising revenue and profit growth over the last several years, JetBlue stock has seen no net price growth since 2003.
That may finally change. JBLU stock holds a forward PE ratio comparable to that of its peers. However, double-digit profit increases will leave little room for JetBlue to fall. Moreover, the move into Europe as well as the Boeing-related issues of its peers should boost JBLU in the near term.
After 16 long years of stagnation and all of the forces set to push revenue and profits higher, investors may finally want to answer the boarding call on JetBlue stock.
As of this writing, Will Healy did not hold a position in any of the aforementioned stocks. You can follow Will on Twitter at @HealyWriting.
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