Morgan Stanley: Sell This Airline Stock Now

Morgan Stanley (NYSE:MS) released a report a couple of days ago arguing that Jet Blue (NASDAQ:JBLU) is poised to underperform relative to the broader market.  Its analysts argue:

1) JetBlue revenue growth has outperformed following JetBlue’s switch to the Sabre reservation systems and recent success in Boston and the Caribbean. These dynamics helped results in recent quarters, but they’ve also raised expectations and created tough comps for second-half 2011. We believe the threat of rising capacity growth and difficult comps will drive below-consensus second-half 2011 earnings.

2) Labor relations and long-term business model flexibility are at risk, in our view, as JetBlue’s pilots are considering unionization.

3) JetBlue has been the best performing low-cost carrier stock over the last three months, creating a differential in valuation that we disagree with — a tactical entry point, in our view.

Morgan Stanley is more bullish on Spirit Airlines (NASDAQ:SAVE).

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Following is some information about the two companies:

  • Jet Blue (NASDAQ:JBLU):  The shares have traded in a 52-week range of $5.21 to $7.60 and most recently traded at $6.01 per share.  Its market capitalization is $1.78 billion, its trailing P/E ratio is 18.72, and it earned $0.32 per share last year. About the company: JetBlue Airways Corporation provides nonstop passenger flight service through its Airbus A320 aircraft. The Company’s airline is based in New York’s John F. Kennedy Airport and currently flies to various destinations in the United States.
  • Spirit Airlines (NASDAQ:SAVE):  The shares have traded in a 52-week range of $11.11 to $13.36 and most recently traded at $13.17 per share.  Its market capitalization is $945.92 million, its trailing P/E ratio is 5.07, and it earned $2.60 per share last year. About the company: Spirit Airlines, Inc. provides passenger airline service primarily to leisure travelers and travelers visiting friends and relatives. It provides travel opportunities principally to and from south Florida, the Caribbean, and Latin America.

Competitors to these companies include:

  • Southwest Airlines Co. (NYSE:LUV): Southwest Airlines Co. is a domestic airline that provides primarily short-haul, high-frequency, point-to-point service. The Company offers flights throughout the United States.
  • AMR Corporation (NYSE:AMR):  AMR Corporation operates an airline that provides scheduled passenger, freight, and mail service throughout North America, the Caribbean, Latin America, Europe, and the Pacific. The Company also provides connecting service throughout the United States, Canada, and the Caribbean. In addition, AMR provides aviation services, call center management services, and investment advisory services.
  • Delta Air Lines Inc. (NYSE:DAL):  Delta Air Lines, Inc. provides scheduled air transportation for passengers, freight, and mail over a network of routes throughout the United States and internationally.
  • US Airways Group Inc. (NYSE:LCC):  US Airways Group, Inc. is an air carrier that transports passengers, property, and mail. The Company provides regularly scheduled service at airports in the United States, Canada, Europe, the Caribbean, and Latin America.
  • United Continental Holdings (NYSE:UAL):  United Continental Holdings Inc. is an airline holding company. The Company owns and operates airlines that transports persons, property and mail throughout the United Statesand abroad.
  • Republic Airways Holdings (NASDAQ:RJET):  Republic Airways Holdings Inc., through its subsidiaries, provides passenger services. The company operates as US Airways Express, America West Express, and American Connection. Republic provides US Airways, American and America West with portions of their regional service, including service out of Boston, Columbus, Indianapolis, New York, Philadelphia, Pittsburgh and St Louis.
  • SkyWest, Inc. (NASDAQ:SKYW):  SkyWest, Inc. operates regional airlines that offer scheduled passenger service to destinations in the United States, Canada, Mexico and the Caribbean.
  • Alaska Air Group, Inc. (NYSE:ALK):  Alaska Air Group, Inc. is an airline holding company. The Company, through its subsidiaries, provides air service to passengers in multiple destinations. Alaska Air also provide freight and mail services, primarily to and within the state of Alaska and on the West Coast.

(Note: Selected financial data are sourced from Yahoo! Finance.  All data are assumed to be accurate.)

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