Despite nearly a 50% earnings increase from 2009 to 2010 on a 15% sales lift, and one of the best balance sheets in the industry, JetBlue's (JBLU) share price has faltered. It can now be purchased at a price about 10% lower than it was two years ago (coincidently the last time I penned a Seeking Alpha article on it) when it was unprofitable and the Dow was near the 7000 level. Thursday’s three cent earnings miss, coupled with a Soleil downgrade and Friday’s market meltdown, played havoc on the shares as they got hammered for a single day 8% loss.
The company is still healthy, as it has $1 billion in cash, sells near book value and has a price multiple of about 12 times estimated earnings. The unpopularity of its stock seemingly has a lot to do with Wall Street’s perennial deep loathing for the sector, magnified by the constant threat of rising oil prices.
It is kind of hard to believe, but despite the Dow nearly doubling and JBLU accumulating $160 million in earnings in the last two years, its stock has actually gone backwards. This phenomenon makes it especially vulnerable as a takeover candidate, since it enables an acquirer to obtain two years of operational improvement without having to pay a dime for it. Logical suitors include United (UAL), Delta (DAL) and Southwest (LUV).
Recent institutional buying: For what it’s worth, there has been some noteworthy buying lately as Apex Capital Management purchased 708,000 shares, Sadoff Investment Management acquired 1,510,000 shares and Guggenheim Capital obtained an 870,000 share position. Although these purchases are dwarfed by comparison to Deutsche Lufthansa’s (DLAKY.PK) 16% stake and Fidelity Magellan’s 15% investment, the fact that they are “value” themed is promising.
The ultimate question is: Will any of JBLU’s frustrated shareholders feel the urgency to exert pressure on the idea of selling the company?
The bottom line: Friday’s selling was way overdone and, consequently, the shares appear attractive again. The stock has dropped 25% from its 52-week highs and has firmly entered into oversold status. A logical progression would be at least a “ dead cat bounce” fueled by bargain hunters, who can’t resist a deal, and those fortunate enough to hold short positions, as they cover, to monetize those profits.
A quick snapback to the $6.50 vicinity seems more than reasonable, so there is opportunity for the nimble investor to make a rapid buck on this one. The longer term investor can play the takeover game angle, with the ultimate pot of gold netting a possible 50% premium.
Disclosure: I am long JBLU.