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JPMorgan Sees Lack of 'Revenue Vigor' in US Airlines; JetBlue Airways (JBLU) Cut to Neutral

October 13, 2015 6:59 AM EDT
Get Alerts JBLU Hot Sheet
Price: $7.42 +0.13%

Rating Summary:
    5 Buy, 16 Hold, 6 Sell

Rating Trend: Up Up

Today's Overall Ratings:
    Up: 13 | Down: 11 | New: 11
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(Updated - October 13, 2015 10:51 AM EDT)

JPMorgan downgraded JetBlue Airways (NASDAQ: JBLU) from Overweight to Neutral with a price target of $27.00 (from $28.00). Analyst Jamie Baker said he doesn't see catalysts and he thinks shares are near fair value.

Speaking more broadly, while the industry has never been more prosperous and able to withstand shocks, the analyst pointed out a lack of industry "revenue vigor."

"... the lack of industry revenue vigor remains the primary impediment to upside, in our view, despite more salient measures (margins, ROIC, free cash flow) continuing to set records. Our patience is running thin, and we believe investors largely feel the same," said Baker.

The analyst continued, "Airline equities continue to screen well on metrics that typically matter: ROIC, low valuations, margin expansion, FCF, you name it. Managements continue to plow cash into dividends and buybacks (AAL bought back 6% of the company in 3Q alone). Planned capacity hasn’t increased as fuel has fallen, though there has been some rebalancing between regions. United’s CEO concedes the company has lost the front line, but it intends to mend labor fences (albeit with some incremental expense, in our view). The march toward investment grade ratings continues. Simply put, the industry has never been this prosperous nor better able to weather exogenous shocks, in our view."

Barker added, "Industry domestic revenue is contracting, despite GDP and consumer trends that aren’t uniquely poor. While currency, fuel surcharges, and sluggish economic trends help explain international weakness, there’s only one thing we can cite to explain what’s happening at home: gratuitous discounting. Until managements take a more aggressive approach to shoring up the top line, equity upside may be difficult to achieve."

JP Morgan current ratings and price targets are:

  • Delta Air Lines (NYSE: DAL), OW, PT $74.50
  • American Airlines (NASDAQ: AAL), OW, PT $66
  • United Airlines (NYSE: UAL) OW, PT $77.50
  • Southwest Airlines (NYSE: LUV), OW, PT $52
  • Alaska Air Group (NYSE: ALK), UW, PT $79

For an analyst ratings summary and ratings history on JetBlue Airways click here. For more ratings news on JetBlue Airways click here.

Shares of JetBlue Airways closed at $26.86 yesterday.



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