Consider the following data for the airline industry for July 2018 (EV=enterprise value, Book=equity book value). Suppose Alaska Air (ALK) has 123123 million shares outstanding. Estimate Alaska Air's share value using each of the five valuation multiples, based on the median valuation multiple of the other seven airlines shown.
Market Capitalization | Enterprise Value (EV) | EV/Sales | EV/EBITDA | EV/EBIT | P/E | Forward P/E | Total Shares | |||
Alaska Air (ALK) | 7,286 | 8,207 | 1.02 | 5.1 | 6.7 | 7.7 | 12.5 | 123 | ||
Peer Data | ||||||||||
American Airlines (AAL) | 17,879 | 37,327 | 0.87 | 5.7 | 8.2 | 10.5 | 8.2 | |||
Delta Air Lines (DAL) | 35,580 | 44,164 | 1.02 | 5.7 | 8 | 10.8 | 8.8 | |||
Hawaiian (HA) | 2,023 | 2,057 | 0.73 | 3.4 | 4.1 | 5.8 | 7.2 | |||
JetBlue Airways (JBLU) | 5,450 | 5,814 | 0.8 | 4.1 | 5.9 | 4.9 | 10.8 | |||
SkyWest (SKYW) | 2,909 | 5,040 | 1.56 | 7.2 | 12.6 | 6.6 | 11.8 | |||
Southwest Airlines (LUV) | 30,318 | 30,691 | 1.44 | 6.9 | 8.9 | 8.6 | 12.3 | |||
United Continental (UAL) | 21,961 | 31,393 | 0.8 | 5.7 | 9.2 | 11.4 | 9.3 | |||
Source: CapitalIQ | ||||||||||
Calculation of financial data of Alaska for calculating multiples
EV = Market Capitalization + (Debt - Cash)
EV of Alaska = 8207
Market Capitalization = 7286
Debt - Cash = EV - Market Capitalization = 8207 - 7286 = 921
EV/Sales = 1.02
Sales = EV / 1.02 = 8207 / 1.02 = 8046.08
EV/EBITDA = 5.1
EBITDA = EV / 5.1 = 8207 / 5.1 = 1609.22
EV/EBIT = 6.7
EBIT = EV / 6.7 = 8207 / 6.7 = 1224.93
Price per share = Market Capitalization / Total Shares
Price per share = 7286 / 123 = 59.24
Price per Share / Earning per share (P/E) = 7.7
Earning per share = Price per share / 7.7 = 59.24 / 7.7 = 7.69
Forward P/E = Price per share / Forward earning = 12.5
Forward Earning per share = Price per share / 12.5 = 59.24/12.5 = 4.74
Calculation of Median Multiples
Multiples | EV/Sales | EV/EBITDA | EV/EBIT | P/E | Forward P/E |
Peer Data | |||||
American Airlines (AAL) | 0.87 | 5.7 | 8.2 | 10.5 | 8.2 |
Delta Air Lines (DAL) | 1.02 | 5.7 | 8 | 10.8 | 8.8 |
Hawaiian (HA) | 0.73 | 3.4 | 4.1 | 5.8 | 7.2 |
JetBlue Airways (JBLU) | 0.8 | 4.1 | 5.9 | 4.9 | 10.8 |
SkyWest (SKYW) | 1.56 | 7.2 | 12.6 | 6.6 | 11.8 |
Southwest Airlines (LUV) | 1.44 | 6.9 | 8.9 | 8.6 | 12.3 |
United Continental (UAL) | 0.8 | 5.7 | 9.2 | 11.4 | 9.3 |
Median | 0.87 | 5.7 | 8.2 | 8.6 | 9.3 |
Calculation of Share Price
EV/Sales = .87
Sales = 8046.08
EV = .87 * Sales = .87 * 8046.08 = 7000.09
Debt - Cash = 921
Market Capitalization = EV - (Debt-cash) = 7000.09 - 921 = 6079.09
Price per share = Market Capitalization / Number of shares = 6079.09 / 123 = 49.42
EV/EBITDA = 5.7
EBITDA = 1609.22
EV = 5.7 * EBITDA = 5.7 * 1609.22 = 9172.55
Debt - Cash = 921
Market Capitalization = EV - (Debt-cash) = 9172.55 - 921 = 8251.55
Price per share = Market Capitalization / Number of shares = 8251.55 / 123 = 67.09
EV/EBIT = 8.2
EBIT = 1224.93
EV = 8.2 * EBIT = 8.2 * 1224.93 = 10044.43
Debt - Cash = 921
Market Capitalization = EV - (Debt-cash) = 10044.43 - 921 = 9123.43
Price per share = Market Capitalization / Number of shares = 9123.43 / 123 = 74.17
P/E = 8.6
Earning per share = 7.69
Price per share = 8.6 * Earning per share = 8.6 * 7.69 = 66.13
Forward P/E = 9.3
Forward Earning per share = 4.74
Price per share = 9.3 * Forward Earning per share = 9.3 * 4.74 = 44.08
Summary
Share Value using each of 5 valuation multiples
Shares Value based on EV/Sales Multiple = 49.42
Shares Value based on EV/EBITDA Multiple = 67.09
Shares Value based on EV/EBIT Multiple = 74.17
Shares Value based on P/E Multiple = 66.13
Shares Value based on Forward P/E Multiple = 44.08
Note : Excel formula (=MEDIAN) has been used to calculate median multiples
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