Two Airlines Get Fresh Tailwinds From Upgrades

Spirit Airlines (NYSE: SAVE) and JetBlue (NASDAQ: JBLU) are the latest two airlines to grab the attention of Wall Street as the economic recovery continues to gather pace. Last week we covered similar moves with United (NASDAQ: UAL) and Alaska (NYSE: ALK) so it’s clear the upside potential in the airline space has some room to go yet. As a long summer approaches, investors considering getting involved would do well to sit up and take note. 

On Tuesday of this week, Susquehanna moved the shares of the two most well-known low-cost US airlines, Spirit and JetBlue, to a Positive rating from Neutral. They’re a fan of the low-cost model operated by both and believe that as a year’s worth of pent-up demand is released over the coming months, this will allow them to be among the most competitively priced options on offer. 

Recovery Potential

The overall recovery potential for the industry is very attractive right now. Towards the end of March, Bank of America were out with bullish comments on US airline stocks specifically, noting how "the leisure travel recovery is in full swing with airline bookings seeing a more pronounced improvement since early February. The re-opening trade began in early November with the vaccine news and the stock moves have been powerful with US airline market caps 7% above pre-pandemic compared to 10% below for the rest of travel (Europe airlines, US hotels, cruise lines)."

The U.S. Global Jets ETF (NYSEARCA:JETS) is up a full 60% since the start of November, with Spirit and JetBlue both outpacing that themselves. The former is up an impressive 140% in the same time period while the latter is up an equally respectable 90%. These moves put them right around their pre-pandemic levels, with a hot summer ahead for them to kick on from here. 

Management from both companies have been keen to keep investors abreast of any developments or changes to their forecasts, of which there have been plenty. To that end, in the middle of March, Spirit’s management issued improved guidance on their forecasted EBITDA, and said that revenue for the second half of March was looking better than expected. Around the same time, JetBlue told investors that their previously forecasted Q1 revenue drop of 65-70%, was going to be more like 61-64%, and their EBITDA was also set to come in higher. 

Bouncing Back

With the full reopening of the economy on the horizon, it could be said that the doomsday scenarios that were priced into the airlines this time last year, are still being unwound. As TSA passenger numbers keep ticking up and airlines keep improving their guidance, we are likely to see more and more upgrades continue to flow from the sell-side.

This morning already, JPMorgan has gotten in on the action with a fresh upgrade to JetBlue. Analyst Jamie Baker said in a note to clients that “prior to COVID-19, JetBlue disclosed an ambitious set of goals at its 2018 investor day, namely that the company is targeting $2.50-3.00 of EPS by 2020, close to an 80% increase at the midpoint from 2018 EPS. While we are no longer modeling for such an outcome, we continue to believe that the company’s cost control will continue to be in focus following the impact of COVID-19." Both airlines have come through the worst of the pandemic and look to be among the best positioned to capitalize on this summer’s recovery-driven bounce. Don’t be surprised to see more attention coming their way before too long.