Here’s why JetBlue stock is soaring.
jetblue airlines (NASDAQ:JBLU) shares surged about 15% in afternoon trading Tuesday to about $7 per share.
The struggling airline has been trying to turn things around, and it suffered a major blow just a few weeks ago when a federal judge rejected its proposed acquisition of Spirit Airlines (NYSE:SAVE). But now there appears to be another potential catalyst for change.
Active investors take a large stake.
JetBlue’s stock price soared Monday afternoon into Tuesday following news reports that Icahn Enterprises, a holding company founded and run by Carl Icahn, had acquired a significant stake in the airline and was potentially looking to secure a board seat.
Icahn owns more than 33 million shares of JetBlue stock, representing about 9.91% of the airline, according to a 13D report filed with the Securities and Exchange Commission (SEC) on February 12.
“Reporters acquired shares of common stock in the belief that the common stock was undervalued and presented an attractive investment opportunity,” the filing said. “The reporter has been and plans to continue discussions with the issuer’s management and board members regarding the possibility of representation on the board.”
Icahn is a well-known activist investor known for pressuring companies to make changes that benefit shareholders. In the 1980s, he acquired TWA Airlines and took it private, but more recently he has launched activist campaigns against companies such as McDonald’s (NYSE:MCD) and Dell (NYSE:DELL). He also made a significant investment in Netflix (NASDAQ:NFLX) when the streamer was struggling in 2012.
Icahn began buying JetBlue stock on Jan. 26, when it was trading at less than $6 a share, and has since accumulated about 33 million shares. Shares rose about 15% on Tuesday, trading at about $7 per share. Icahn’s interest in potential board representation is a sign that he is also interested in influencing the company’s strategic direction.
JetBlue regroups after failed takeover bid
Icahn’s stock purchase comes about a week after JetBlue learned that its $3.8 billion offer to acquire rival Spirit Airlines was rejected by a Massachusetts district court judge.
On Jan. 30, JetBlue reported fourth-quarter earnings that topped estimates despite posting a net loss of $104 million and revenue falling 3.7% year-over-year to $2.3 billion. The airline’s stock price fell after its earnings report due to the weak outlook. First quarter revenue is expected to decline 5-9% year-over-year, and available seat miles, or capacity, is expected to decline 3-6%. % lower
New JetBlue CEO Joanna Geraghty, who took office Feb. 12, plans to return the company to profitability through new revenue initiatives and defer $2.5 billion in capital spending until the end of the 2010s.
“2024 is a significant year of transformation for JetBlue, and we are taking aggressive actions, including launching a $300 million revenue initiative, to return to profitability and deliver value to our shareholders,” Geraghty said in the earnings call.
Regarding Icahn’s sudden stake in the company, JetBlue executives said in a statement via CNBC: “We remain open to constructive dialogue with our investors as we continue to execute on our plans to enhance value for all shareholders and stakeholders.”
JetBlue’s valuation metrics are low, with a price-to-book ratio of 0.62 and a price-to-sales ratio of 0.21. This was probably one of the factors that caught Icahn’s attention. But there’s clearly a lot of work to be done for the company to return to profitability.
Icahn has had a lot of success in value discovery over the years, so his involvement will likely pique the interest of investors. However, investors may want to keep in mind that billionaire activist investors have different motivations, needs, and expectations than regular investors, so as always, it’s best to do your research on stocks and proceed with caution.
