Question

Table 1
Consider the following data for the airline industry in early 2018 (EV = enterprise value, BV = book value,NM = not meaningful because divisor is negative).
P/E price-earnings ratio, P/S price-to sales, P/B price to book balue													Table 2	December 28,2018		December 31,2017
Company Name	Market Cap	EV	P/E (T)	P/E (F)	PEG	P/S	P/B	EV/Sales	EV/EBITDA	EBIT	EV/EBIT					EBITDA	Equity
Delta Air Lines (DAL)	33.61	43.46	9.69	7.35	0.54	0.76	2.96	0.99	0.6	$5,855,000	7.423			Price	EPS	All numbers in thousands
United Continental (UAL)	22.37	32.44	10.35	7.84	0.52	0.58	2.36	0.89	5.85	$3,674,000	8.83		Delta Air Lines (DAL)	$50.18	$8.05	$12,126,000	$13,910,000
Southwest Airlines (LUV)	25.56	26.12	7.18	9.49	0.71	1.19	2.52	1.21	6.24	$3,455,000	7.56		United Continental (UAL)	$83.17	$7.93	$12,829,000	$8,806,000
JetBlue Airways ( JBLU)	4.79	5.55	7.18	8.68	0.79	0.64	1.08	0.75	4.9	$1,000,000	5.55		Southwest Airlines (LUV)	$46.76	$6.43	$7,265,000	$10,430,000
Alaska Air (ALK)	7.31	8.11	9.13	9.36	1.69	0.89	1.93	0.99	6.48	$1,371,000	5.915		JetBlue Airways ( JBLU)	$16.00	$2.19	$2,646,000	$4,834,000
Hawaiian (HA)	1.28	1.45	3.47	6.22	-9.67	0.45	1.32	0.51	2.65	$493,821	2.936		Alaska Air (ALK)	$6.31	$6.50	$2,770,000	$3,721,000
SkyWest (SKYW)	2.29	4.67	4.65	8.04	0.45	0.7	1.19	1.43	6.07	$388,199	12.03		Hawaiian (HA)	$26.08	$7.48	$493,821	$965,942
Ryanair	13.19	17.31	10.67	11.42	0.5	1.5	2.47	1.96	7.01	$1,692,300	10.229		SkyWest (SKYW)	$44.75	$9.50	$980,270	$1,754,322
American Airlines (AAL)	14.34	34.6	12.77	5.47	0.74	0.33	-	0.79	6.08	$4,770,000	7.254		Ryanair	$71.39	$6.47	$2,638,700	$4,468,900
Average	13.86	19.3	8.34	8.21	-0.41	0.78	1.98	1.06	5.09	$2,522,147	7.53		American Airlines (AAL)	$31.83	$2.44	$12,755,000	$3,926,000
Median	13.19	17.31	9.13	8.04	0.54	0.7	2.145	0.99	6.07	$1,692,300	7.423
Max Value	33.61	43.46	12.77	11.42	1.69	1.5	2.96	1.96	7.01	$5,855,000	12.03
Min Value	1.28	1.45	3.47	5.47	-9.67	0.33	1.08	0.51	0.57	$388,199	2.94
Standard Deviation	11.28	15.36	2.99	1.8	3.49	0.37	0.71	0.43	2.12	$1,979,782	2.67
Suppose that in January 2019, Delta Airline has EPS of $9.0 and a book value of equity of $12.25 per share.
a. Using the average P/E multiple in Table 1, estimate DAL’s share price

Answer 1

Average P/E (T) = 8.34

Average P/E (F) = 8.21

Delta Airlines EPS in Jan 2019 = $9.0

DAL Share Price using P/E (T) = 8.34*9 = $ 75.06

DAL Share Price using P/E (F) = 8.21*9 = $ 73.89