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Spirit Airlines: Abnormal Enterprise Income Growth

Spirit Airlines: Abnormal Enterprise Income Growth. Module 8 Carl Brinker March 17, 2014. Agenda. Company Background FCF Model Results Residual Income Model Results Abnormal Enterprise Income Growth Results Choosing a Model: Analysis & Conclusions. Company Background. Company Background.

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Spirit Airlines: Abnormal Enterprise Income Growth

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  1. Spirit Airlines: Abnormal Enterprise Income Growth Module 8 Carl Brinker March 17, 2014

  2. Agenda • Company Background • FCF Model Results • Residual Income Model Results • Abnormal Enterprise Income Growth Results • Choosing a Model: Analysis & 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. Free Cash Flow Results (Mod 5)

  6. Free Cash Flows (Mod 5)

  7. Residual Income Valuation Results (Mod 7)

  8. Residual Income Valuation: Anchors on NEA Same value result as FCF model: it checks!

  9. Abnormal Enterprise Earning Growth (Mod 8)

  10. Abnormal Enterprise Earning Growth: Anchors on EPAT

  11. A Better Look… • Center Columns Hidden

  12. Choosing a Model

  13. Choosing a Model

  14. Analysis & Conclusions • No major problems • Identical valuation from FCF, RI, and AGR Models • Abnormal Growth Model provides the most explanatory power, followed by Residual Income

  15. Questions?

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