JetBlue (JBLU, Financial) reported its first quarter report today, beating the analysts’ estimate on revenue and earnings. For the first quarter, JetBlue’s earnings came in at 59 cents, beating the analysts’ estimate by 6 cents. On the revenue front, JetBlue’s sales came in-line with the analysts’ target of $1.62 billion, affirming a year over year growth of 6.2%.
JetBlue has been beating earnings estimates for the past few quarters; however, the stock has headed lower every time due to the company’s weak guidance. This quarter was no exception as JetBlue’s said its revenue per available seat mile is expected to drop about 7% for the second quarter.
JetBlue’s guidance came in as bad news for the entire sector as all the stocks in the industry headed lower following the announcement. However, I think investors should accumulate JetBlue on the pullback as the stock has considerable upside potential.
Capacity growth is not a problem
JetBlue increasing its capacity by 9% to 11% is probably the reason why the company guided its RASM lower for the upcoming quarter. However, JetBlue’s guidance is probably conservative as the carrier has never had trouble filling its planes.
JetBlue’s management has always been smart with its expansion plans and its new routes have always been successful. Hence, I think the capacity increase isn’t something to worry about and the company is being too conservative about its RASM guidance.
For now investors should continue focusing on the carrier’s earnings growth. JetBlue is still witnessing great fuel cost savings and is using the money prudently to expand into markets with great potential. In addition, the carrier has many great revenue drivers for the future. Expansion of its successful Mint service, along with charges for check-in bags should boost the carrier’s earnings in the near future. In addition, expansion of its Even More program should also act as a tailwind. All in all, investors should look at this pullback as a buying opportunity.
Conclusion
JetBlue’s drop despite the stellar earnings report is unwarranted, and I think investors should use the drop to add more shares to their portfolio. Despite the weak revenue guidance, JetBlue has enough growth drivers to continue expanding its horizons. Hence, JetBlue is a strong buy on the pullback, especially since the stock is trading under $20.
Disclosure: The author doesn’t have any position in the stock mentioned in the article.
