Wolfe Isn't Changing Its Mind About JetBlue Despite Lufthansa Situation

Lufthansa is seeking to reduce its debt and, with this intention, it announced last Wednesday that it is offering a voluntary cash incentive to holders of its JetBlue Airways Corporation (NASDAQ: JBLU) equity-backed convertible note, to encourage them to exchange the notes ahead of the 2017 expiration date. The holders willing to convert will receive JetBlue equity, plus some extra cash (2,500 euros per 100,000 euros of convertible notes owned).

In a recent report, Wolfe Research weighed in on JetBlue following Lufthansa’s announcement. Although the analysts expect “essentially all convert holders to take the offer,” they don’t see it impacting on their JetBlue thesis. A a Peer Perform rating was maintained and the analysts have not changed estimates (EPS of $1.64 for 2015, and EPS of $1.79 for 2016).

“There is no change to JBLU’s share count -- the report assures. This could potentially mean 46.7M shares of JBLU would effectively trade hands from Lufthansa to convert holders, who we guess would probably turn around and sell the stock. But selling pressure could be of fset by short covering. There might be some trading noise around March 17^th when the deal closes.”

Moreover, assuming Lufthansa disposes of all of its JetBlue stock, one could expect both of its company-appointed JetBlue board members to resign. “New blood on a board of directors in a company clearly in transition probably isn’t a bad thing,” the report said.