Here's What Grounded JetBlue's Rating At Buckingham

Analysts at Buckingham Research Group no longer hold a bullish rating on JetBlue Airways Corporation JBLU due to the ongoing negotiations between pilots and management and competitive concerns. Daniel McKenzie downgraded JetBlue's stock from Buy to Neutral with a price target lowered from $28 to $24.

JetBlue's pilots are requesting mediation from the National Mediation Board to assist in an ongoing contract negotiation that dates back to 2014, Aviation Tribune reported. The pilots are asking for a contract which includes market-rate compensation, but management's proposal implies limited pay increases which would make the firm's pilots among the least paid.

A new satisfactory pilot contract would likely force nonfuel CASM (cost per available seat mile) higher than what the Street is modeling in 2018, according to McKenzie. This would also occur at the same time legacy airlines are "becoming more assertive" and enter JetBlue's key growth markets including Boston and the Miami area.

As such, multiple expansion in the stock in the next year is "unlikely," the analyst added. But investors who can wait up to three years could see upside in the stock as high as $35 per share, which would imply a 14x multiple on an EPS of $2.50. By comparison, the stock is now trading at an 11.4x multiple on the analyst's 2018 estimates, which implies "close to full valuation" for the time being.

Bottom line, JetBlue's stock has limited upside, but its valuation is unlikely to contract given the potential for revenue upside from the rollout of MINT and fare families and also from commercial initiatives.

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