Jetblue Airways

IPO Valuation
By Team WorldCom
Mitchell Cameron, Lorenzo Meza, Joanna Broderick, Alex, Toureen, Tarek BinMahfooz
Introduction
Established in 1999 by David Neeleman, CEO and Founder
Management:
David Barger - former vice president of Continental Airlines
John Owen - former executive VP and treasurer of Southwest
Airlines

Initial Public Offering:

5,500,000 Shares
JBLU Nasdaq symbol
No current dividends
Problem Statement
JetBlue management team in considering IPO to raise funds
Pricing policy for IPO shares
Critical to price shares correctly in order to succeed
Should Jetblue stick with a discounted IPO stock price, or
increase this price to address investor demand?
Reasoning to Increase IPO Pricing
Reasons to Increase the price: ($25 $26 Range)
A larger influx of capital
Stronger signal of confidence
Take Equity now for growth, Debt later once growth has slowed
More value for current investors
Higher exchange of control for capital
Reasoning to Maintain Current IPO Pricing
Reasons to maintain discounted stock price: ($22 - $24 Range)
Positive returns for employees and IPO purchasers
Access to future capital needs
Generate positive investor buzz
Less risk from investor perception
Increase in buyer demand
Stock Valuation Assumptions
Southwest Airlines WACC as a proxy discount rate

Equity Debt

Risk Free Rate 5% Cost of Debt 6.91%

Market Risk Premium 5% Tax 31%

Beta (Proxy SWA) 1.1 Years to Maturity 10

Coupon 8%

CAPM 10.5% After Tax Cost of Debt 4.77%

Weight
Stock Valuation:

fREE cASH fLOW B Y YEAR Terminal Value $3,158.41

PV of Forecast & TV $ 695.49

(-) Debt $ 290.67

Value of Equity $ 404.83

Shares Outstanding (Mil) 35.10

Value Per Share $ 11.53

1 2 3 4 5 6 7 8 9

fORECAST yEAR
 Stock Valuation: Multiples
Multiples Valuation

Trailing EBIT Multiple Leading EBIT Multiple

EBIT 2001 $26.91 EBIT 2002 $79.76

Trail EBIT Multi 8.66 Lead EBIT Multi 12.92

Value $233.12 Value $1030.81

(-)Debt $290.67 (-)Debt $290.67

Equity Value $-57.54 Equity Value $740.15

Shares Outstanding (Mil) 35.1 Shares Outstanding (Mil) 35.1

Value per Share $-1.64 Value Per Share $21.09

Recommendation
Maintain discounted stock price: ($22 - $24 Range)

Trailing EBIT Multiple Value per Share $-1.64

Leading EBIT Multiple Value Per Share $21.09

DCF Analysis Value Per Share $11.53

 Appendix
WACC 9.87%

(US GDP
Long Term Growth Rate Growth) 2.5%

Shares Outstanding (Mil) 35.1

Forecast Year Actual 1 2 3 4 5 6 7 8 9

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Terminal

EBIT 26.91 79.76 134.35 181.17 225.75 273.90 325.85 374.90 409.52 442.67

NOPAT 17.76 52.64 88.67 119.57 148.99 180.77 215.06 247.44 270.28 292.16

Depr. 10.42 17.71 26.25 35.60 44.62 54.45 65.15 75.38 82.82 90.04

Capital Expenditure 234.00 290.37 328.34 344.76 310.29 325.80 342.09 299.33 157.15 132.00