Case study JetBlue Airways IPO valuation The case examines the April 2002 decision of JetBlue management

nt to price the initial public offering of JetBlue stock during one of the worst periods in airline history. The case outlines JetBlues innovative strategy and the associated strong financial performance over its initial two years. In teams of exactly 3 people read the case description file Case_description.pdf and follow the instructions below to complete the assignment. You are required to value the companys stock using the DCF model and the multiples methodology. In particular you have to provide: An Excel file with all the main assumptions and calculations (the file Case_ figures.xls might help you as a starting point). A PowerPoint presentation (max 1015 slides) with the key points of your work. The presentation has to be a sort of information memorandum containing the company profile, the industry analysis and the valuation.

Your PowerPoint presentation should provide answers to the following questions: What is an IPO and why it is such a big deal? Is this a good idea for JetBlue? Does the financial forecast in case Exhibit 13 seem reasonable? What are the key assumptions? What discount rate is appropriate for the cash-flow forecast? What is your approach to terminal value? How do your terminal-value assumptions affect the estimated value of JetBlue shares? What are the pros and cons of using a comparable-multiple approach in valuation? What do you think JetBlue stock is worth? Please include reasoning for all assumptions made in the valuation.

Deadline for submission: 9 May 2013 at 24:00 Sent to: ies.company.valuation@gmail.com

Presentation of the case study solution (the submitted PowerPoint file): 13 May 2012 at 12:3015:20 (10 min per group, involve all team members) Points: case study (30p) and presentation (10p), penalty of -2 points per day of late submission

Case study Grading details Introduction and industry analysis Short company profile (history of the company, description of business activities, management and owners of the company, volume, value of sales and profitability, other relevant factors) 0.5 points Potential benefits and costs of IPO 3.0 points Short industry analysis (industry characteristics key success factors, key industry drivers macroeconomic or industry-specific) 1.5 points Porters five forces (threat of new entrants Swhat are the entry barriers, threat of substitute products, competitive rivalry within the industry, bargaining power of suppliers, bargaining power of customers) 2.0 points SWOT analysis (strengths, weaknesses, opportunities, threats ) 1.0 points

DCF valuation Analysis of financial forecasts and comparison with its peers (aircraft and revenue forecast, operating margins, inflations levels, length of forecast period) 3.0 points Derivation of a proper discount rate (risk free rate, beta, equity risk premium, possibly reflecting the risk associated with a small size of the company, cost of debt , capital structure) 3.0 points Determination of terminal value (constant growth vs. multiples, comparability of different multiples) 3.0 points Calculation and discounting of free cash flows 2.0 points Sensitivity analysis (identifying key valuation drivers, performing a sensitivity analysis of the key drivers) 2.0 points

Multiples valuation Pros and cons of using a comparable-multiple approach in valuation 3.0 points Valuation based on valuation multiples (trailing vs. leading multiples, EV/EBIT, EV/EBITDA, M/B, selection of appropriate peers) 3.0 points

Value conclusion Reconciliation of different value estimates (book values from the balance sheet, DCF method, valuation multiples, IPO offer) 3.0 points