JetBlue stock price has imploded; brace for more turbulence ahead

JetBlue (NASDAQ: JBLU) stock price has imploded as the company continues operating in a highly difficult market and after receiving credit downgrades by Moody’s and S&P Global. It has dropped by over 16% this year while benchmark indices like S&P 500 and Nasdaq 100 have risen by double digits.

JetBlue and low-cost airlines are under pressure

The business model of most low-cost airlines is being challenged in the past few years. Indeed, a company like Southwest Airlines which once dominated the industry has come under intense pressure, with its stock now down by over 27% from its highest point in 2023. 

The same is happening in Europe, where Ryanair stock has moved into a deep bear market as it fell by over 32% from its highest point in 2023. Just recently, the stock crashed after the company warned about demand. 

In the United States, JetBlue and Spirit Airlines have all retreated after the Federal Trade Commission (FTC) forced them to end their merger. 

JetBlue’s crisis escalated this week after the company received major downgrades by the top rating agencies like Moody’s and S&P Global. The two firms slashed their ratings to a notch above triple C level, a move that could limit purchases by collateralized loan obligations (CLO). 

The company has now moved to the market to raise additional capital. It sold $2 billion of seven-year notes with a 10% yield. It also raised $765 million of a five-year term loan, with the two transactions being backed by its loyalty program.

The most recent data shows that these bonds are under pressure, with the 10% one trading at 86 cents for the dollar. 

JetBlue is working on a turnaround

These corporate actions happened at a time when JetBlue is working on a strategy to turn around its business. Before the current phase, the company pegged its growth strategy to its merger with Spirit Airlines, a deal that fell apart in 2023. 

Now, the company is reducing its routes in a bid to focus on areas like New York, Florida, and Puerto Rico that do well with leisure travel. Bulls believes that network optimization, coupled with more merchandising, will help it turn its business in the long term.

The most recent results showed that its second-quarter revenue dropped by 6.9% to $2.4 billion while its net profit during the quarter came in at $25 million. For the six months to June, the company’s revenue dropped to $4.63 billion while its net loss moved to $691 million. 

JetBlue estimates that its business will continue to experience turbulence this year. The average seat miles (ASM) figure is expected to drop by between 3% and 6% while its revenue growth will drop by between 5.5% and 1.5%. For the year, revenue will drop by between 6% and 5%. 

Analysts believe that JetBlue’s revenue growth metrics will be weaker than expected this year as demand seems to be softening and competition rising.

The most recent data shows that airfares in the US are falling, a move that could impact its revenues and profits. Data by the Bureau of Labor Statistics shows that the airline fares index dropped by 1.6% in July, continuing a trend that has been going on for months.

Is JetBlue a bargain?

Many investors, especially retail ones, may be tempted to buy JetBlue shares since they have plunged by almost 80% from their highest point in 2021. The stock is also hovering at its lowest point since November last year. 

Investors believe that buying the dip may make sense since JetBlue is a well-loved brand that is implementing a turnaround. Besides, it has a price-to-sales multiple of just 0.17, lower than the industry’s average of 1.45.

However, historically, data shows that investors who buy undervalued and troubled companies underperform the market in the long term than those who buy companies with momentum. For example, Nvidia investors have done better than Boeing, which has made many negative headlines in the past. 

Analysts are mostly neutral on the JetBlue stock. TD Cowen has a hold while Citigroup and JPMorgan have a neutral rating. 

Instead of investing in JetBlue stock, I believe that its bonds may offer a good opportunity for income investors. 

JetBlue stock price analysis

The weekly chart shows that the JetBlue share price has been in a strong bearish trend in the past few months. It recently dropped below the key support level at $6.58, its lowest point in March 2020 when the Covid-19 pandemic started. 

JetBlue has moved below the 50-week and 100-week Exponential Moving Averages (EMA), meaning that bears are in control. 

The MACD and the Relative Strength Index (RSI) have pointed downwards. Therefore, the stock will likely continue falling as sellers target the key support level at $3.36, its lowest point in October last year. This price is about 30% below the current level.