Anyone with a TV probably heard about what is being dubbed “The Valentine’s Day Massacre.”  This refers to the debacle that put a cloud over JetBlue Airways (JBLU). 

The situation stemmed from the storm that hit the east coast on Valentine’s Day that wreaked havoc on JetBlue’s systems and kicked off a public-relations nightmare.  The images of passengers trapped in planes on the tarmac for more than 10 hours, flight cancellations lasting days, and upset travelers stranded in terminals revealed a lack of contingency plans as their operations took almost a week to get back online. 

The breakdown might have crippled many companies in the same situation.  But that may not be the case for JetBlue.

The difference lies in the quick decisive handling of the crisis by Chief Executive David Neeleman.  Neeleman immediately thrust himself into the situation, appearing in a slew of interviews with the major media outlets.  He consistently offered updates, took responsibility, and clearly displayed his grasp of the situation. 

And why not?  This is a CEO that corporate America should be proud of.  His story is one of admiration after starting as a college dropout.  He started his own airline in 1984 (Morris Air) and then had a short career with Southwest Air.  Neeleman then started Open Skies, an electronic airline reservation system, which he later sold to Hewlett-Packard before he moved on to start JetBlue. 

Clearly, the travel industry runs through Neeleman’s veins.  And that’s a big advantage for JetBlue.

The fundamentals of this discount, customer-centric airline have been strong thanks to its leadership and employees, both of which are clearly committed to providing the best flying experience at competitive prices.  On average, earnings over the past year have beaten analyst expectations by 30 percent.  And though earnings dropped late in 2006, the company continues to provide a strong fundamental platform for a bullish investment. 

Adding to JetBlue’s fundamental attractiveness is their handling of the recent publicity “storm.”  The company has proposed a new passenger “bill of rights” that will certainly be a hit with delay-weary travelers.  In fact, it may end up not only retaining JBLU’s existing customers but also attracting a new wave of travelers.  In other words, the current fundamental dip is more likely a temporary setback than a long-term albatross around JetBlue’s neck.

Given these strong fundamentals, I started to view the recent selling of the stock as a potential opportunity.  But I wanted confirmation, so I looked at the other two components of our Behavioral Valuation model – technicals and sentiment.

From a technical perspective, JBLU’s chart is one of recent weakness laden with potential support.  The stock, down almost 20 percent since January, was taken below the 13 mark on Tuesday’s selling, as investors took a “sell first, ask questions later” approach. 

The move was significant, testing a long-term support/resistance level that has been in place for some time.  Wednesday’s trading moved the shares above 13, suggesting that the market is trying to support JetBlue at or near current prices.

Another technical positive is that the stock remains above its 20-month moving average, which is often a barometer of long-term health.  The 20-month is currently planted just above 12, so the stock should see some added support there.

Sentiment toward JetBlue hints of pessimism.  Current recommendations show half the analysts rank the stock a “buy,” with 30 percent “holds” and 20 percent “strong sells.”  We’ve seen an upgrade and a downgrade since yesterday and I expect to see more activity in this area.  Such activity aside, the current analyst landscape supports the bullish case, since there is ample room for upgrades to drive prices higher.

Options data also reveals pessimism (more puts traded than calls) that should help the bullish cause.  Why?  Quite simply, pessimism eventually shifts to optimism, and that adds buying pressure and drives process higher.

Finally, the company’s short interest ratio currently reads a lofty 8.2.  That means that it would take more than eight days to get rid of all the shorted shares at the stock’s average daily trading volume.  This ratio is lower than last month’s, indicating that the shorts are beginning to cover their positions.  This is also bullish, since short covering requires buying the stock.

So what’s my bottom line for JetBlue?  The current fundamental strength, positive technicals, and pessimistic sentiment combine to make a bullish outlook.  Should the company’s recent strength continue, we’ll probably see sellers morph into buyers.  That should add buying pressure and push up the stock price. 

If that happens, much of the credit should go to David Neeleman.

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