JetBlue (JBLU, Financial) released its Q4 earnings Thursday, and to no one's surprise, the company beat the analysts’ estimates on earnings as well as revenue. JetBlue more than doubled its fourth-quarter profit, compared to a year earlier, as lower fuel costs and a surge of new customers bolstered the bottom line.
JetBlue’s net income jumped from $88 million in Q4 FY2014 to $190 million in Q4 FY2015. This translates to an EPS of 56 cents, 5 cents more than the analysts’ expectations. Revenues jumped 10% and came in at $1.59 billion, topping the $1.58 billion expected by analysts.
I have been bullish on JetBlue for quite some time, and I was surprised by the stock’s recent plunge. Despite oil's price moving south, JetBlue is down about 20% from its 52-week highs. However, the plunge opens up an opportunity for long-term investors to buy the stock. Following the strong earnings, JetBlue’s stock is up 2.6%, but it still has more upside potential, which is why investors are encouraged to add it to their portfolios.
No hedges will add to profits
Airlines have been losing out on a lot of gains due to hedging. For instance, JetBlue lost $33 million on fuel hedging in the fourth quarter. However, the company is now positioned to benefit greatly from cheaper oil in the first and second quarters of 2016 as it has no fuel hedges in place.
Growing capacity and unit revenue
JetBlue’s downfall started when the company slashed its unit revenue guidance in November. Investors have been keeping close tabs on the unit revenue of airlines so as to ensure that the companies do not throw away the profits from cheaper oil by competing on price.
JetBlue’s unit revenue performance was better than most of its peers in 2015; however, it fell 3.6% in the quarter from the year-ago period. The company was able to offset the drop in unit revenue by growing capacity. Traffic jumped 12.4% in the quarter while capacity rose 10.4%, pushing load factor higher by 1.5 points to 83.6%.
JetBlue’s revenue-growing initiatives like Fare Options, Mint and Even More along with the June introduction of a fee for passengers’ first checked bags enabled the carrier to beat the revenue estimates and ease concerns regarding falling unit revenue. Going forward, these initiatives and smart expansion should continue to benefit JetBlue.
Conclusion
JetBlue’s stock has been punished for no reason, and it will start rising again soon. Given the company’s growth and cheaper oil, JetBlue still possesses about 15% upside potential. Moreover, a hedge-free next six months will further add to JetBlue’s earnings. The stock is currently cheap; with earnings and revenue both expected to grow significantly, investors can still buy JetBlue.
