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Bear of the Day: JetBlue Airways (JBLU)

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With fuel costs rising, the airline industry has felt plenty of pressure lately. This means that investors should tread carefully in this space right now, acting carefully to avoid underperforming stocks with their own individual issues. Unfortunately, one of those stocks is JetBlue Airways (JBLU - Free Report) .

JetBlue is a low-fare, low-cost passenger airline based in New York's John F. Kennedy International Airport. The company carries more than 38 million customers a year to 101 cities in the U.S., Caribbean, and Latin America with an average of 1,000 daily flights.

Rising fuel costs are a concern for everyone in this industry, with prices rising about 23% in the first quarter of 2018 alone. But JetBlue’s own passenger revenue outlook is perhaps more worrisome. The company expects Q2 revenues per available seat mile (RASM) in the range of a decline of 3% to flat year over year.

Moreover, JetBlue recently reached a new labor agreement with its pilots. This is another industry-wide trend, but it does add to the volatility for JBLU. Right now, non-fuel unit costs are expected to lie between 2% and 4% in Q2, but that figure could go up noticeably once the agreement is ratified.

Rising costs have forced analysts to turn sour on the company’s earnings outlook. In the past 60 days, the company has seen eight revisions to its full-year EPS estimates, with 100% agreement to the downside. This has dragged its Zacks Consensus Estimate for earnings in 2018 about 14 cents lower in that time, and now the company is expected to see earnings growth of just 4% this year.

Looking further ahead, the Zacks Consensus Estimate for JetBlue’s 2019 earnings has dropped by 19 cents over the past 60 days. What’s worse, the company’s Most Accurate Estimates for 2018 and 2019 earnings—which look at only the most recent analyst projections—are more than 1.5% below their consensus estimates. This spells bad news for JetBlue’s most recent business conditions.

Thanks to the above headwinds, JetBlue shares have underperformed its industry so far this year. The stock has dropped about 15% in 2018, while its industry has declined just 5%.

Shares might be looking undervalued at just 11x forward earnings, but things are trending in all the wrong directions. With many headwinds facing the broader industry, it is best to avoid sluggish stocks like JBLU.

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