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Why Is JetBlue (JBLU) Up 14.1% Since Last Earnings Report?

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A month has gone by since the last earnings report for JetBlue Airways (JBLU - Free Report) . Shares have added about 14.1% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is JetBlue due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

JetBlue Beats on Q3 Earnings

JetBlue's third-quarter 2018 earnings per share (excluding 27 cents from non-recurring items) of 43 cents surpassed the Zacks Consensus Estimate by a penny. However, the bottom line decreased 21.8% on a year-over-year basis primarily due to higher costs.

However, total operating revenues of $2,008 million fell short of the Zacks Consensus Estimate of $2,011.9 million. Nevertheless, the top line increased 10.5% from the year ago figure. Passenger revenues, which accounted for bulk of the top line (96.7%), improved 10.8% in the quarter under review. Other revenues increased 3.5%.

Operating Statistics in Q3

Capacity, measured in available seat miles, expanded 8.7% year over year. Traffic, measured in revenue passenger miles, grew 9.7% in the reported quarter. Load factor (percentage of seats filled by passengers) improved 80 basis points (bps) year over year to 85.9% as traffic growth outpaced capacity expansion in the three-month period.

Average fare at JetBlue during the quarter was up 2.5% to $175.66. Yield per passenger mile improved 1% year over year to 14.53 cents. Passenger revenue per available seat mile (PRASM: a key measure of unit revenue) increased 1.9% to 12.48 cents and operating revenue per available seat mile (RASM) inched up 1.7% to 12.91 cents. RASM was impacted negatively to the tune of 0.4 points due to inclement weather in September.

Expenses

In the third quarter, total operating expenses (on a reported basis) increased 28.1% year over year mainly owing high fuel costs. Average fuel cost per gallon (including fuel taxes) escalated 36.6% to $2.32. Moreover, JetBlue’s operating expenses per available seat mile (CASM) was up 17.8% to 12.38 cents in the reported quarter. Excluding fuel, the metric climbed 3.2% to 8.27 cents due to a rise in labor costs.

Balance Sheet

JetBlue exited the quarter with cash and cash equivalents of $454 million compared with $303 million at the end of 2017. Total debt, at the end of the quarter was $1,568 million compared with $1,199 million at the end of 2017.

Outlook

For the fourth quarter of 2018, the carrier expects capacity to increase between 7.5% and 9.5%. The metric is anticipated to increase in the range of 6.5% to 7% for 2018.

Consolidated operating cost per available seat mile, excluding fuel, is expected to decrease in the band of 1.5% to 3.5% in the fourth quarter. For the current year, the metric is still projected to grow in the range of 0.75% to 1.75%.

RASM is expected to grow between 1% and 4% in the final quarter of 2018. Fourth-quarter fuel cost, net of hedges, is anticipated to be $2.48 per gallon.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -6.35% due to these changes.

VGM Scores

Currently, JetBlue has a subpar Growth Score of D, however its Momentum Score is doing a lot better with a B. Charting a somewhat similar path, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, JetBlue has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.




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