JetBlue (JBLU): A Stock Worth Buying?
JetBlue had made it to the headlines this week because of delayed flights due to system-wide computer problems. According to an official statement from the airline, it experienced "IT problems with its 'flight dispatch system,' which allows jets to pull away from the gate. It is slowly coming back .... Travelers should expect delays."
The airline industry in general had suffered problems, from delayed flights, poor customer service up to the extent of buy outs and closing due to poor economy.
However, JetBLue (JBLU) was able to still fly with a balance sheet, good valuation and good customer service amidst the falling airline industry.
JetBlue (JBLU) might just be a stock that investors should take into consideration to.
Gregg Jahnke of Seeking Alpha made an intelligent analysis on why JetBlue (JBLU) is a stock worth considering.
According to Mr Jahnke, Donald Smith & Co had been JetBlue's owner since 2008 and now is the company's largest shareholder. Donald Smith & Co had a good reputation in the industry for managing over $3 billion institutional money. The firm follows a discipline of investing in only the bottom 19 per cent of price/book value stocks.
Another reputable firm that had invested in JetBlue is the PRIMECAP Management which now owns 8 per cent of JBLU. Mr Jahnke said that PRIMECAP Management also invested in Google and Amgen.
The third reputable name to have had invested in JetBlue was John Hussman, a stock market analyst and mutual fund owner.
Mr Jahnke also debunked the notion that JetBlue is a "discount" or "value priced" airline. The airline has, in fact, the highest customer satisfaction rating as proven by the NPS (Net Promoter Score). The NPS is also used by Apple retail and General Electric, among others.
According to the NPS rating scale of - 100 to 100, JetBLue scores at about 65 to 70 while its large airlines competitors scored around at 0 to 10.
Customers were satisfied with JetBlue's leather seats with 30+ channel TV. Although, it does not offer first class, customers have more leg room and baggage space that it particularly attracted the leisure travelers.
As for its workforce, since JetBlue has an impressive profit sharing plan, the airline is able to go about its operation as a non-union carrier without being a low wage carrier.
In 2012, even with a series of other airlines filing for bankruptcy, JetBlue pre-paid a $200 million worth of some future aircraft deliveries. The company believes that the purchase is better than having the extra money sleeping in the bank.
The company has also admitted that it has plenty of free cash flow and that cash from its operations has been consistently above $500 million in the span of four years.
As estimated, JetBlue can have stable growth in stock that it can probably sell for 12 times assuming a market multiple of 15. Twelve times a mid-point of $.85/share estimate gives me roughly a $10 share target price, according to Mr Jahnke.