JetBlue Airways (NASDAQ:JBLU) stock soared on Tuesday, rising nearly 15% in afternoon trading to about $7 per share.
The struggling airline has been looking to turn around its fortunes, and it was dealt a major blow just weeks ago when a federal judge denied its proposed acquisition of Spirit Airlines (NYSE:SAVE). However, it now seems there is another potential catalyst for change on the horizon.
Activist investor takes big stake
JetBlue’s stock spiked Monday afternoon and into Tuesday following news reports that Icahn Enterprises, the holding company founded and run by Carl Icahn, had taken a sizable stake in the airline and was looking to potentially gain some board seats.
The 13D filing with the Securities and Exchange Commission (SEC) on Feb. 12 said Icahn owned more than 33 million shares of JetBlue stock, representing approximately a 9.91% stake in the airline.
“The Reporting Persons acquired their positions in the shares of Common Stock in the belief that they were undervalued and represented an attractive investment opportunity,” the filing read. “The Reporting Persons have had, and intend to continue to have, discussions with members of the Issuer’s management and board of directors regarding the possibility of board representation.”
Icahn is a reputed activist investor, known for pushing companies to make changes that are deemed beneficial to shareholders. In the 1980s, he took over TWA airlines and took it private, but in more recent times, he has launched activist campaigns against companies like McDonald’s (NYSE:MCD) and Dell (NYSE:DELL). He also made a sizable investment in Netflix (NASDAQ:NFLX) when the streamer was struggling back in 2012.
Icahn started buying up shares of JetBlue on Jan. 26, when it was trading below $6 per share, and he has amassed some 33 million shares since then. The stock was up some 15% on Tuesday, trading at about $7 per share. Icahn’s interest in potential board representation signals that he also has an interest in influencing the strategic direction of the firm.
JetBlue regroups after failed acquisition bid
Icahn’s stock purchases came about a week after JetBlue learned that its $3.8 billion proposal to buy rival Spirit Airlines was denied by a U.S. District Court judge in Massachusetts, who said it would violate antitrust statutes by essentially removing a low-cost carrier from the market.
On Jan. 30, JetBlue reported fourth-quarter earnings that topped estimates, despite the fact that it had a net loss of $104 million and saw its revenue decline 3.7% year over year to $2.3 billion. The airline’s stock price dropped following that earnings report due to a weak outlook, as its revenue is predicted to be down 5% to 9% year over year in the first quarter, while available seat miles, or capacity, will be 3% to 6% lower.
New JetBlue CEO Joanna Geraghty, who started Feb. 12, is looking to return the company to profitability with new revenue initiatives and by deferring $2.5 billion in capital expenditures until the end of the decade.
Geraghty said in the earnings release, “2024 is an important year of change for JetBlue, and we are taking aggressive action, including launching $300 million of revenue initiatives, to return to profitability and deliver value for our shareholders.”
As for Icahn’s sudden stake in the company, JetBlue management said in a statement (via CNBC): “We are always open to constructive dialogue with our investors as we continue to execute our plan to enhance value for all of our 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 is certainly a lot of work to do to get the company back to profitability.
Icahn has had a lot of success in finding value over the years, so his involvement should interest investors. However, investors may want to keep in mind that a billionaire activist investor has different motives, needs and expectations than the average investor, so as always, it’s a good idea to do your research on the stock and proceed with caution.
