JetBlue Airways is an up and coming airline, specializing in non-stop flights to and from highly traveled destinations. JetBlue's target clientele is business men and women who demand high service at low cost. .
JetBlue is growing at an extreme rate which must decrease in coming years. In the last two years, JetBlue grew at over 100%, I quickly decreased the rate of growth until it was the industry average for the last years of my model.
• Beta - I was unable to find this value anywhere so I took an average from comparable companies in the same industry: AirTran, Southwest, and Delta. This gave me a beta value of about 1.25, which seems slightly low to me.
• I assumed that the JetBlue would become much more efficient in the running of the airline which would lead to decreases in the percent of sales in the operational expenses and working capital.
• I also took into account other sources of income in my model. JetBlue has other investments that have brought in significant income into the company; I assumed that these cash flows would remain for the period of my model. Other comparable companies had these incomes also. .
Key Statistics from Model.
• From calculations JetBlue's stock is overvalued. The calculated stock value, $21.07 compared to the current price of $34.56. .
• Working Average Cost of Capital: .1228.
• Terminal Value: $1,938,630,000.75.
• Debt: $ 639,498,000.00.
Relevant Company Information.
• There was 3-2 Stock Split on November 21; this is a good indicator of positive growth.
• JetBlue is able to reduce debt by renting many of its aircraft instead of purchasing its fleet. .
• JetBlue does have planes on order which it will be required to pay for over the next decade, this will lead to reduced earnings.
• The finical model was extremely sensitive to the beta.