NEW YORK (CNN/Money) - An analyst downgrade sent JetBlue shares tumbling nearly 9 percent Friday, a day after the discount airline reported a rise in its third-quarter net profit.
JetBlue (JBLU: Research, Estimates) earned $29 million for the quarter, or 39 cents per share, versus $12.2 million, or 18 cents per share, in the year-ago quarter, marking its 11th consecutive quarter of profitability.
Investors have rewarded JetBlue shares, which have grown 151 percent during the past year, for the company's performance, but J.P. Morgan's airline analyst, Jamie Baker, felt it was time for a reality price check.
Baker downgraded JetBlue shares to "underweight" from "neutral" based on the airline's valuation, reduced market potential at its New York John F. Kennedy base, and increased competition from Delta.
"Following its competitive reception in Atlanta, we believe JetBlue's willingness to enter competitor hubs has declined, at least for now. Removing these markets from consideration limits new market opportunity at JFK to just 13 percent of New York City demand," he wrote in a research note.
Baker also lowered his fourth-quarter earnings estimate for JetBlue to 34 cents per share from 38 cents.
JetBlue's foray into the competitive Atlanta market sparked a turf battle with Delta (DAL: Research, Estimates), whose Song airlines was seen by industry insiders as an attempt to grab a share of the ever-growing low-fare market segment, and fellow low-cost carrier AirTran (AAI: Research, Estimates).
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JetBlue is scheduled to end its Atlanta service on Dec. 4, after only seven months of service, in response to the increased competition from both carriers.
"Delta went in there and added a lot of capacity. It sought to defend itself," said Kevin Mitchell, chairman of the Business Travel Coalition. "From a consumer standpoint, I'm disappointed that JetBlue is going to withdraw from Atlanta."
Baker concedes that JetBlue's "near-flawless execution" and "continued earnings momentum" will help the airline remain competitive, but notes that the network carriers are ready to fight back.
"We will be the last to suggest the industry will succeed in putting low-cost carriers out of business, though we'd like to be among the first to suggest that they're honestly going to try," he added.
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