1. Jetblue Airways IPO Valuation
By Team WorldCom
Mitchell Cameron, Lorenzo Meza, Joanna Broderick, Alex, Toureen, Tarek BinMahfooz

2. 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

3. 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?

4. 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

5. 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

6. 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
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 Price
20.69
Total Debt
1,842,000,000
Shares Outstanding
776,800,000
Market Value
1,983,465,600
Market value of Equity
16,071,992,000
Debt Weight
10.99%
Equity Weight
89.01%
Enterprise Value
18,055,457,600
WACC
9.87%

7. Stock Valuation: Terminal Value $3,158.41 PV of Forecast & TV $ 695.49$
(-) Debt $
Value of Equity $
Shares Outstanding (Mil)
35.10
Value Per Share $

8. 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 $
(-)Debt
$290.67
Equity Value
$-57.54
$740.15
Shares Outstanding (Mil)
35.1
Value per Share
$-1.64
Value Per Share
$21.09

9. 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

10. Appendix WACC 9.87% Long Term Growth Rate (US GDP 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
NWC Investments
29.56
30.08
32.60
31.04
33.53
36.17
34.15
24.10
23.08
FCF
$ (249.58)
$ (243.50)
$ (222.19)
$ (147.71)
$ (124.10)
$ (98.05)
$ (10.66) $ $
$3,158.41
Present Value
-77.51
-55.74
-5.52
80.93
97.34
Terminal Value
PV of Forecast & TV $
(-) Debt $
Value of Equity $
35.10
Value Per Share $