Option Trade 
JetBlue Airways Corporation (NASDAQ:JBLU) Calls 
Tuesday, April 28, 2015

**OPTION TRADE: Buy the JBLU Jun 2015 20.000 call (JBLU150619C00020000) at or under $1.20. Place a protective stop limit at $0.50 and a pre-determined sell at $2.20.

by Ian Harvey

April 28, 2015

Introduction

JetBlue Airways Corporation (NASDAQ: JBLU), a provider of air transportation services across the United States, the Caribbean and Latin America, is scheduled to release its first quarter results before the market open on April 28th. Analysts expect the company to post earnings of 39 cents per share, versus a profit of one penny during the same period last year. The stock is up 24.0% on the year.

Like all transportation stocks, the company likely benefited from low fuel costs during the quarter, providing a nice boost to quarterly earnings. The stock has continued to trade higher despite a recent rally in oil prices, and with a P/E of just 16.5, there is still additional upside if results top analyst estimates.

Analysts expect 23% earnings growth from the company in 2016, and even if future results are not quite as good as expected, if the company comes anywhere close to that forward guidance, the stock has a lot of room to move higher.

Technical Outlook

Shares of JetBlue Airways Corporation closed at $19.72, down $0.17 (0.88%) in the last trading session. Today's volume of 9.69M shares is greater than the average volume of 7.23M shares. The technical momentum Relative Strength Index indicator shows oversold conditions.

JBLU is trading above the fifty day moving average and lower than the two hundred day moving average. The stock's 52 week low is $7.61 and 52 week high is $20.25.

Earnings

JetBlue Airways last released its earnings data on Thursday, January 29th. The company reported $0.26 earnings per share for the quarter, beating the analysts’ consensus estimate of $0.25 by $0.01. The company had revenue of $1.45 billion for the quarter, compared to the consensus estimate of $1.45 billion.

During the same quarter last year, the company posted $0.14 earnings per share. JetBlue Airway’s revenue was up 5.9% compared to the same quarter last year. Analysts expect that JetBlue Airways will post $1.71 EPS for the current fiscal year.

Upcoming Report

2013 and 2014 were not the best years for JetBlue Airways Corporation as far as economic performance is concerned. For both the said years, the airways company failed to meet the targets against the invested capital. Furthermore, the company wasn’t helped by the fact that it owned the lowest profit margins in the whole 2014 market.

However, the worst seems to be over, and JetBlue seems to have had a renaissance. It hasn’t just come back; it has come back stronger. A stable balance between the supply and demand seems to have returned to the JetBlue operations, particularly in the Caribbean and the Latin American region.

This has aided with generating better revenue figures. Another factor that seems to be working in favor of the company is its familiarity with the domestic market, which seems to be more popular this time around. In addition, the premium service which is going to start soon will travel on transcontinental routes and is expected to add to the benefits.

Hence, taking all these factors in to account, the profit margins this year are expected to hike considerably. In view of these latest developments, analysts believe that EPS will double the figure in 2015, going up from $0.70 to $1.70. Some analysts have gone further to say that the figures expected to jump over even that estimate. Hence, at the moment; for JetBlue; sky is the limit.

Unit Revenue Growth Means Strong Profitability

The strong unit revenue growth -- along with the significant recent drop in oil prices -- will drive the big profit gains analysts are expecting for 2015. After posting a meager 0.5% pre-tax margin in Q1 2014, JetBlue is likely to post a mid-teens pre-tax margin for Q1 2015.

Furthermore, if JetBlue's stellar March unit revenue performance is indicative of demand trends for the rest of the year, analysts may need to crank up their full-year earnings estimates yet again.

Analysts Opinions

Investment analysts at CRT Capital upped their price target on shares of JetBlue Airways from $24.00 to $26.00 in a note issued to investors on Tuesday 14th April. The firm currently has a “buy” rating on the stock. CRT Capital’s price objective would indicate a potential upside of 31.98% from the stock’s previous close.

A number of other research reports have been presented recently, these are as follows:-

• Analysts at Argus raised their price target on shares of JetBlue Airways from $18.00 to $23.00 and gave the company a “buy” rating in a research note on Tuesday, March 17th.

• Analysts at Zacks upgraded shares of JetBlue Airways from a “neutral” rating to an “outperform” rating and set a $22.00 price target on the stock in a research note on Monday, March 16th.

• Analysts at Raymond James upgraded shares of JetBlue Airways from a “market perform” rating to an “outperform” rating and raised their price target for the stock from $18.12 to $22.00 in a research note on Monday, March 16th.

• Finally, analysts at Vetr downgraded shares of JetBlue Airways from a “sell” rating to a “strong sell” rating and set a $17.50 price target on the stock in a research note on Friday, February 20th.

One research analyst has rated the stock with a sell rating, six have issued a hold rating and eight have given a buy rating to the company’s stock. The company currently has a consensus rating of “Hold” and an average target price of $17.35.

Conclusion

Delta (DAL), which I recommended on the 12th April and completed quickly, has already reported its quarterly results, with revenue per available seat mile falling, but overall revenue rising 5%. Earnings were 45 cents, a penny above the estimate. Expect the rest of the airline industry will follow suit, with earnings being driven by lower fuel costs.

Look for a strong quarterly report from JetBlue.

Therefore, based on the facts above the following option trade of the week is recommended…..


**OPTION TRADE: Buy the JBLU Jun 2015 20.000 call (JBLU150619C00020000) at or under $1.20. Place a protective stop limit at $0.50 and a pre-determined sell at $2.20.



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