JetBlue downgraded to Neutral amid Strait of Hormuz risk
Seaport Research Partners downgraded JetBlue (JBLU) from Buy to Neutral, citing balance-sheet risk shifting “to the front burner” as the Strait of Hormuz remains closed and US-Iran tensions keep jet fuel volatile.
While a solid industry pricing backdrop suggests upside to JetBlue Airways Corp's (NASDAQ: JBLU ) revenue in the back half of the year, a worsening geopolitical landscape raises risks, according to Seaport Research Partners' Daniel McKenzie The Analyst: McKenzie downgraded JetBlue from Buy to Neutral, adding that the balance sheet risk has moved "to the front burner" with the Strait of Hormuz still closed.
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The upgrade had quantified the revenue upside from Spirit Airlines' cessation of operations in May at around $500 million and JetBlue's management lifted the value of their JetForward plan by $300 million, suggesting that "conservatism remains in that outlook," the analyst stated.
Another key assumption was that the US-Iran war would end "relatively soon," he added.
However, military experts indicate that the Strait of Hormuz is "unlikely to open anytime soon," McKenzie pointed out.
President Donald Trump signed an agreement in June that set a 60-day deadline for ending the war with Iran and resolving issues on its nuclear program.
The deadline was Monday, according to the Associated Press.
Both sides remain at odds.
Higher Geopolitical Risk = Lower Valuation Multiple Investors could get a lower entry point into the JetBlue stock, he noted.
While jet fuel volatility is a challenge for all industry participants, it poses "a disproportionate risk" to JetBlue Airways, given its " elevated debt levels," the analyst wrote.
If oil prices rise from ongoing US-Iran hostilities, JetBlue may increase its debt to fund losses.
That will make its balance sheet "too indebted," leading to its shares ultimately becoming "worthless," McKenzie said.
With supply appearing to be modestly higher versus the third quarter, revenue upside for JetBlue Airways"could be limited at a time when it may need to boost ticket prices," McKenzie said.
JBLU Price Action: Shares of JetBlue Airways had declined by 5.75% to $5.33 at the time of publication on Monday.
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