Stocks with market capitalization between $2B and $10B, such as JetBlue Airways Corporation (NASDAQ:JBLU) with a size of US$5.3b, do not attract as much attention from the investing community as do the small-caps and large-caps. Despite this, commonly overlooked mid-caps have historically produced better risk-adjusted returns than their small and large-cap counterparts. Today we will look at JBLU’s financial liquidity and debt levels, which are strong indicators for whether the company can weather economic downturns or fund strategic acquisitions for future growth. Don’t forget that this is a general and concentrated examination of JetBlue Airways’s financial health, so you should conduct further analysis into JBLU here.
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How does JBLU’s operating cash flow stack up against its debt?
JBLU has built up its total debt levels in the last twelve months, from US$1.3b to US$1.6b , which accounts for long term debt. With this increase in debt, JBLU currently has US$937m remaining in cash and short-term investments for investing into the business. On top of this, JBLU has generated US$1.3b in operating cash flow in the last twelve months, leading to an operating cash to total debt ratio of 81%, signalling that JBLU’s current level of operating cash is high enough to cover debt. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In JBLU’s case, it is able to generate 0.81x cash from its debt capital.
Can JBLU meet its short-term obligations with the cash in hand?
Looking at JBLU’s US$2.5b in current liabilities, it seems that the business may not be able to easily meet these obligations given the level of current assets of US$1.5b, with a current ratio of 0.6x.
Is JBLU’s debt level acceptable?
With debt at 36% of equity, JBLU may be thought of as appropriately levered. This range is considered safe as JBLU is not taking on too much debt obligation, which may be constraining for future growth. We can test if JBLU’s debt levels are sustainable by measuring interest payments against earnings of a company. Ideally, earnings before interest and tax (EBIT) should cover net interest by at least three times. For JBLU, the ratio of 10.22x suggests that interest is comfortably covered, which means that lenders may be inclined to lend more money to the company, as it is seen as safe in terms of payback.
JBLU has demonstrated its ability to generate sufficient levels of cash flow, while its debt hovers at an appropriate level. However, its lack of liquidity raises questions over current asset management practices for the mid-cap. Keep in mind I haven’t considered other factors such as how JBLU has been performing in the past. I recommend you continue to research JetBlue Airways to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for JBLU’s future growth? Take a look at our free research report of analyst consensus for JBLU’s outlook.
- Valuation: What is JBLU worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether JBLU is currently mispriced by the market.
- Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at firstname.lastname@example.org.