Imperial Capital Gives A Lukewarm Outperform At JetBlue

Imperial Capital commented on JetBlue Airways Corporation JBLU Friday and maintained an Outperform rating and $20 price target after the company beat Q4 estimates.

Analyst Bob McAdoo thought that the company’s new baggage fees, fare levels and a higher seat density would improve profitability. The new initiatives are expected to drive approximately $400 million in incremental operating income, but will not be fully implemented until 2018.

In the near-term, lower jet fuel prices “may represent approximately $750 million of incremental cost savings in 2015,” according to McAdoo. Management has indicated that fuel cost savings will be used to reduce balance sheet leverage with the aim of improving ROIC.

McAdoo added that he remains “somewhat cautious on announced new routes” including New York to Reno and San Francisco to Las Vegas, “but given current fuel prices, things may be ok.”

The firm estimated Q1 2015 EPS of $0.42, above consensus of $0.40, on revenue of $1.513 billion.

JetBlue Airways recently traded at $16.97, down 1.1 percent.