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Delta Airlines Module 3: Market Multiple Valuation. Laura Conti. Comparable Companies. Delta Airlines Southwest Spirit JetBlue Question: Are comparable companies properly priced?

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Delta airlines module 3 market multiple valuation

Delta AirlinesModule 3: Market Multiple Valuation

Laura Conti


Comparable companies
Comparable Companies

  • Delta Airlines

    • Southwest

    • Spirit

    • JetBlue

    • Question: Are comparable companies properly priced?

      • Assuming target company (Delta) is not priced correctly but other companies similar to Delta are priced properly



Nea multiple1
NEA Multiple

  • Enterprise value = NEA * NEA market multiple

  • $52,423.83 = $8,017 * 6.54

  • Equity value = Enterprise value – value owed to debt holders (NFL)

  • $42,275.83 = $52,423.83 - $10,148

  • Equity value per share= Equity value/common shares outstanding

  • $48.71 = $42,275.83/867.87 shares

  • Market share as of 1/24/2014: $31.11 -undervalued

  • Recommendation: Buy



Book value multiple1
Book Value Multiple

  • Equity value = Book value of equity * BV market multiple

  • -$2,131 = -$2,131 * 1

  • Equity value per share = Equity value/common shares outstanding

  • -$2.46= -$2,131/867.87

  • Market share as of 1/24/2014: $31.11 -overvalued

  • Recommendation: Sell



Epat multiple1
EPAT Multiple

  • Enterprise value = EPAT * EPAT market multiple

  • $265.27 = $10 *26.53

  • Equity value = Enterprise value – value owed to debt holders (NFL)

  • -$9,882.73 = $265.27- $10,148

  • Equity value per share = Equity value/common shares outstanding

  • -$11.39 = -$9882.73/867.87

  • Market price as of 1/24/2014: $31.11 –overvalued

  • Recommendation: Sell



Ni multiple1
NI Multiple

  • Equity value =Net income * NI market multiple

  • $11,738.34 = $1,009 * 11.63

  • Equity value per share = Equity value/common shares outstanding

  • $13.53 = $11,738.34/867.87

  • Market price as of 1/24/2014: $31.11 –overvalued

  • Recommendation: Sell



Ci multiple1
CI Multiple

  • Equity value =Comprehensive Income * CI market multiple

  • -$10,130.94 = -$802 * 12.63

  • Equity value per share = Equity value/common shares outstanding

  • -$11.67 = -$10,130.94/867.87

  • Market price as of 1/24/2014: $31.11 –overvalued

  • Recommendation: Sell


Industry multiple available seat miles
Industry Multiple: Available Seat Miles

  • A measure of an airplane's carrying capacity available to generate revenue. Available seat miles refers to how many seat miles are actually available for purchase on an airline. Seat miles are calculated by multiplying the available seats for a given plane by the number of miles that plane will be flying for a given flight.

  • Potentially better estimate because it deals with a relevant industry measure that can help to estimate future performance because it is tied to a value driver



Available seat miles multiple
Available Seat Miles Multiple

  • Enterprise value = Available Seat Miles * Available seat miles market multiple

  • $41,070.60 = 230,415 * 0.18

  • Equity value = Enterprise value – value owed to debt holders (NFL)

  • $30,922.60 = 41,0170.60 – $10,148

  • Equity value per share = Equity value/common shares outstanding

  • $35.63 = $30,922.60/ 867.87

  • Market price as of 1/24/2014: $31.11 –undervalued

  • Recommendation: Hold


Averages
Averages

  • Average of all multiples: $12.06

  • Average of multiples (except negative book value): $21.62

  • Market price as of 1/24/2014: $31.11

  • Stock is overvalued

  • Recommendation: Sell


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