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Ting's Jet Blue case Ting's Jet Blue case Presentation Transcript

  • JetBlue Airways IPO Valuation Ting Xiao
  • Contents Discounted Cash Flow approach Multiples comparables approach Conclusion 1 2 3
  • Discounted Cash Flow approach Two-step From year 2010 to infinity From year 2002-2010 WACC
  • CF(2002-2010)
    • OCF=NOPAT + Depreciation
    • Changes in Net WC=Ending Net WC-
    • Beginning Net WC
    • Total cash of the firm=OCF-CAPEX-Changes
    • in Net WC
    • Then, we get those numbers:
    CF(2002-2010)
    • Question: how to determine “g”?
    • Choice one: choose reasonable “g”
    • Negative or irrational “g” Impossible!
    • Choice two: project relative stable “g”
    • after year 2010
    CF(2010-infinity)
    • Assumptions to be made:
    • Then, let us forecast…
    • Finally, we decide g=6.5%
    CF(2010-infinity)
  • WACC Pioneer model in low-fare air travel that needs to be followed The most stable one in historical annual growth of low-fare airlines (see Exhibit 8) Like JetBlue, they all belong to low-fare airlines that compare to other groups (see Exhibit 12) Idea: Why choose Southwest?
  • WACC-9.91% Weights Re Rd Equity: 16,071.99 Debt: 1,842 E/(E+D)=0.9 D/(E+D)=0.1 Rf : 5% Rm-Rf : 5% Beta: 1.10 CAPM: 10.5% Weighted average of cost :6.91% Tax rate:34% Rd : 4.561%
  • DCF approach
    • Finally, we get those numbers:
    • Value of the firm=2,630,100,000
    • Shares outstanding=46,078,829
    • Price per share = $57.1
    • Comment: from this point, even the target
    • price at $25 or $26 is still conservative.
    • Higher price is achievable.
  • Multiples comparables approach
    • Several debates:
    • Trailing vs. Leading?
    • All airlines vs. one group?
    • Southwest in particular or not?
    Low-fare US Airlines Low-fare Foreign Airlines Big 5 Low-fare Regional Airlines Level Of Relevance
  • Continued
    • My Choice: leading+ one group+ Southwest (why?)
    • Numbers are in thousands
    (Median and Mean) (From Southwest )
  • Conclusion $24.8 (from Southwest ) $15.1 (from Mean) $24.1 (from Median) $57.1 (from DCF approach) Increase the Price to $28!
  • Thank You !