1 / 19

Spirit Airlines: Valuation of Equity

Spirit Airlines: Valuation of Equity. Module 9 Carl Brinker March 24, 2014. Agenda. Company Background Estimating Value of an Equity Share Analyst Reports Adjusting for Date and Mid-Year Sensitivity Analysis: Growth and WACC Conclusions. Company Background. Company Background.

keanu
Download Presentation

Spirit Airlines: Valuation of Equity

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Spirit Airlines: Valuation of Equity Module 9 Carl Brinker March 24, 2014

  2. Agenda • Company Background • Estimating Value of an Equity Share • Analyst Reports • Adjusting for Date and Mid-Year • Sensitivity Analysis: Growth and WACC • Conclusions

  3. Company Background

  4. Company Background • Ultra-low cost carrier • 2-star rating (lowest in USA) • Hubs in Texas and Florida • Revenues of $1.3 billion (small carrier) • JetBlue: $4.9 billion • Delta: $35 billion • Initial Public Offering in June 2011 • Carries no long-term debt – unusual for industry • Known for controversies • Poor safety record & customer service ratings • Questionable advertising campaigns

  5. Estimating the Value of an Equity Share

  6. Value of an Equity Share Current Market Price (March 19): $62.41

  7. Analyst Reports

  8. Analyst Reports • Data gathered from Value Line and Yahoo Finance • Yahoo Finance data not detailed and short-term • Longest forecast: 2015 • Following analysis is conducted on Value Line data Value Line is best!

  9. Analyst Reports Implied Compound Growth: 13.67% Target Price: $72.00

  10. Analyst Reports: Dividend Valuation Dividend Discount Model: PV Equity: $43.80 vs Market price of $62.41 The Dividend Model is useless: it’s 100% based on terminal value

  11. Analyst Reports: Residual Income Growth Now, we can back into growth in residual income

  12. Analyst Reports: Residual Income Growth Growth in Residual Income: 3.90% We now can use this to back into Sales Growth

  13. Analyst Reports: Sales Growth • Implied Long-Run Sales Growth: 10.75% • Unrealistically high – I chose to stay with my rate of 2.5% • Airline industry growth with GDP – limited long-term growth

  14. Adjusting for Date and Mid-Year

  15. Adjusting for Date and Mid-Year

  16. Sensitivity Analysis: Perpetual Growth and WACC

  17. Sensitivity Analysis: Results • Beta ranged widely among sources, and perpetual growth • has a large impact on valuation • Blue = Sell • White = Buy • My recommendation: Hold or Tentative Sell

  18. Conclusions • Recommendation: Hold or Tentative Sell • Analyst Reports indicate an extremely high growth rate • Likely that the 5-year horizon is not long enough to reach steady state • Findings are very sensitive to perpetual growth rate • and somewhat sensitive to WACC

  19. Questions?

More Related