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Delta Airlines Module 3: Market Multiple Valuation

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

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  1. Delta AirlinesModule 3: Market Multiple Valuation Laura Conti

  2. 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

  3. NEA Multiple

  4. 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

  5. Book Value Multiple

  6. 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

  7. EPAT Multiple

  8. 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

  9. NI Multiple

  10. 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

  11. CI Multiple

  12. 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

  13. 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

  14. Available Seat Mile Multiple

  15. 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

  16. 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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