Jetblue Airways Ipo Valuation
JetBlue Airways IPO Valuation
There are a couple of ways to conduct an IPO valuation—the Discounted Cash Flow approach and the Multiple Comparables Approach.
Discounted Cash Flow Approach (Exhibit 1)
Using the financial forecasts provided by management and applying it against the discounted cash flow approach, a NPV of -$613M was determined. This was placed against a WACC of 8.2. Growth rates between 2-4% were considered, however, ultimately, a growth rate of 2% was determined due to the price/shares relative proximity to Southwests share price of $20.69. Although the calculated Price/Share is at $31.6, this can be reasoned through its innovative/cutting edge/high quality airline service and its economy of scale. Under the DCF method, the firm value was determined to be worth $1.281B.
Market Valuation/Relative Valuation Approach (Exhibit 2)
Three types of comparables were used in the Market Valuation/Relative Valuation Approach—EBITDA Multiple, EBIT Multiple, and the P/E Multiple. The comparables used were AirTran, ATA, Frontier, Ryanair, and Southwest. By applying the average EBITDA multiples and EBIT multiples to JetBlues calculated EBITDA and EBIT, share prices of $10.88 and $2.89, respectively, were determined. These share prices were very far off from the price ranges offered in the deal and did not appear reasonable for a firm with so much growth potential. Since the stock price was not provided, in order to calculate the P/E ratio for JetBlue, the range of $22-26 (initial price range-revised price range) and the Diluted EPS was used to calculate P/E. The P/E ratios ranged from 19 to 23, which is relatively close to the average P/E multiple (19.92) from the comparables. The average P/E multiple lies between the $22 and $23 share price.
Conclusion
According to the DCF model and the market valuation model, I would estimate JetBlues IPO share price to range from $26-$31, which falls closely in line with the revised IPO offering.
Exhibit 1
2002E
2003E
2004E
2005E
2006E
2007E
2008E
2009E
2010E
Depreciation
NOPAT