JetBlue Is Down By 7%, Here Is Why

Key Insights

• JetBlue made a $3.6 billion offer for Spirit Airlines, which represented a 50% premium for the Spirit stock. 
• The market is worried that JetBlue would spend a lot of money and would not see positive results from the deal in the near term. 
• JetBlue stock will likely need significant upside catalysts to break the current downside trend. 

JetBlue Stock Declines As Traders Remain Puzzled About Spirit Airlines Deal

Shares of JetBlue  continue to move lower as investors remain worried about the company’s proposal to buy Spirit Airlines.

On April 5, JetBlue revealed an all-cash offer of $33 per share of Spirit Airlines, representing a 50% premium to Spirit’s closing price on April 4. The offer values Spirit Arilines at $3.6 billion.

JetBlue noted that “the combination of the two airlines would position JetBlue as the most compelling national low-fare challenger to the four large dominant U.S. carriers […]”.

This news have sent shares of Spirit Airlines towards the $28 level and put significant pressure on JetBlue stock.

What’s Next For JetBlue Stock?

Currently, analysts expect that JetBlue will report a loss of $0.18 per share in the current year and a profit of $1.45 per share in the next year, so the stock is trading at roughly 9 forward P/E.

Analyst estimates have been trending lower in recent months due to the negative impact of higher oil prices. Now, traders will have to evaluate additional risks as it is not clear whether the combination of the two airlines would be immediately successful.

The market is worried that JetBlue decided to pay a hefty premium and will not be able to achieve good results in the near term. It remains to be seen whether speculative traders will be ready to buy JetBlue stock even after the strong pullback. Most likely, JetBlue stock will need material upside catalysts to break the current downside trend.

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