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Why JetBlue Stock Is Down Today

By Lou Whiteman - Dec 2, 2020 at 11:53AM

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The airline is selling shares to raise additional capital.

What happened

Shares of JetBlue Airways ( JBLU -1.80% ) fell 7% at the open on Wednesday after the airline announced a secondary offering. Selling more stock is by definition dilutive to existing holders, but in this airline's case, investors can't be too upset that JetBlue is adding to its liquidity.

So what

The carrier said Wednesday morning it would raise about $500 million by selling 36.5 million shares at $14.40 each. That's a small addition to the 270 million shares already outstanding, but secondary offerings by their nature make each slice of the overall pie a bit smaller and tend to cause downward pressure on share price.

A line of JetBlue tails parked at the airport.

Image source: JetBlue Airways.

In JetBlue's case, it is easy to see why the airline decided that bringing in the extra capital was worthwhile. Airlines have been hit hard by the pandemic, with travel demand well below last year's levels.

JetBlue earlier in the week said that it expects fourth-quarter flying to be down 45% to 50% year over year, with fourth-quarter revenue off by 70%. The airline, which expects to burn through between $6 million and $8 million per day in the quarter, had previously expected revenue to be down 65% during the period.

Now what

JetBlue shares recovered somewhat from the initial sell-off, trading down 3% as of 11 a.m. EST on Wednesday. For long-term holders, the offering is a good news.

Shares of JetBlue lost nearly half their value back in March, but the stock has been coming on strong in recent weeks thanks to positive news on the development of a COVID-19 vaccine. We're hopefully at the beginning of the end of the COVID-19 crisis, but it will still take time to get the vaccine widely distributed and travelers flying again.

Thanks to the offering, JetBlue has an added liquidity cushion to see out the crisis. That's well worth the little bit of dilution.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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