Presentation Transcript

1. Market Multiple Valuation
2. Southwest Airlines:Business Description Southwest Airlines Co. operates Southwest Airlines and AirTran Airways, major passenger airlines that provide scheduled air transportation in the US and near-international markets As of December 31, 2012, the company served 97 destinations in 41 states and consisted of 694 aircrafts Known for conveniently timed flights, low fares, and no supplementary fees for baggage Boeing is Southwest’s sole supplier for aircrafts The company’s business is somewhat seasonal and greater during summer months
3. Southwest and AirTran Acquisition On May 2, 2011, Southwest acquired all of the outstanding equity of AirTran Holdings, Inc. whose parent company was AirTran Airways Note 1: Summary of Significant Accounting Policies states the accompanying Consolidated Financial Statements for 2011 include the results of operations and cash flows for AirTran from May 2, 2011 through December 31, 2011
4. Steps to using Market Multiples
5. Data for Market Multiple Valuation
6. NEA Multiples With Delta Airlines Without Delta Airlines The stock price in both cases suggests that Southwest’s stock was undervalued and therefore I recommend buy Southwest.
7. BV Multiples With Delta Airlines Without Delta Airlines The stock price with Delta suggests that Southwest’s stock was overvalued and therefore I recommend sell. Without Delta the stock price is undervalued and I recommend buy.
8. EPAT Multiples With Delta Airlines Without Delta Airlines The stock price with Delta suggests that Southwest’s stock was undervalued and therefore I recommend buy. Without Delta the stock price is overvalued and I recommend sell.
9. NI Multiples With Delta Airlines Without Delta Airlines The stock price in both cases suggests that Southwest’s stock was overvalued and therefore I recommend sell Southwest.
10. Profit per ASM Multiple With Delta Airlines Without Delta Airlines The stock price in both cases suggests that Southwest’s stock was overvalued and therefore I recommend sell Southwest.
11. Profit per RPM Multiple With Delta Airlines Without Delta Airlines The stock price in both cases suggests that Southwest’s stock was overvalued and therefore I recommend sell Southwest.
12. Revenue Multiple With Delta Airlines Without Delta Airlines The stock price in both cases suggests that Southwest’s stock was undervalued and therefore I recommend buy Southwest.
13. Combining Estimates of Equity Value per Share Conclusion: Take Delta Airlines out of the Valuation because it is not a great comparable company for Southwest because it flies internationally and has a large accumulated deficit. My recommendation when averaging the multiples is that Southwest’s stock is undervalued and therefore buy the stock.
14. Errors in the Market Multiple Valuation
15. Works Cited Capital IQ SEC website Module 3 from Market Multiple Valuation