Spirit Airlines (SAVE) is an ultra low-cost, low-fare based in Fort Lauderdale, Florida that provides affordable travel opportunities. The IPO for Sprit airlines was offered on June 11th, 2011. The price of the stock at the IPO date was of $12.00. According to NASDAQ.com, the money that was raised on the IPO was $187.2 million dollars, with 5 million dollars in expenses. After the underwriting cost eliminated they approximately raised171.0 million.
After the IPO sale, the company decided to retain net proceeds of 150 million and the remaining was used to pay three individual, unaffiliated holders subordinated notes equal to 450,000. The remaining of the proceeds that they estimated to be 20 million were used to paid the principal of Tranche notes A and B, and to redeem Class B Preferred Stock. As of today 12/08/12, the Spirit Airlines (SAVE) stock price is $17.14. Comparing the quarterly revenue growth from SAVE to the industry and its competitor, this quarter SAVE had a growth of 0.30, JetBlue had a growth 0.19, and the industry growth was 0.25.
The IPO was a success, why, because they raised more money than they expected, and after the expenses they had the 150.0 million that was the objective and 21 million more to pay debt.
COMPANY AND INDUSTRY
Spirit Airline, Inc., (SAVE) started as Clipper Trucking Company in 1964. The airline service was founded in 1980 in Macomb County, Michigan as Charter One. Its operating base is currently in Fort Lauderdale and Detroit Metropolitan Wayne County Airport. It’s focus cities are Dallas/Fort Worth International Airport, O’Hare International Airport in Chicago and McCarran International Airport in Las Vegas. The parent company is Indigo Partners. In 2007 Spirit announced to transition to be an ultra low cost carrier, which meant charging less for checked bags and low prices in their travel fares.
Looking to the 10-Q filling of Spirit Airlines, what I find really interesting is that the company doesn’t have any debt. Under its long-term liabilities where usually companies show their debt, its showing the long-term income taxes and deferred credits and other long-term liabilities, but nothing specific as debt. From that we can say then that the capital structure of the company is 100% equity and 0% debt. Long-term deferred income taxes| 28,311| | | 12,108| | Deferred credits and other long-term liabilities| 29,040| | | 39,935| Take from Spirit Airlines 10-Q filed on October 31st, 2012. http://finance.yahoo.com/q/sec?s=SAVE+SEC+Filings
Since the company doesn’t have any debt, then we can assume that the beta of Spirit Airlines would be an unlevered beta of 0.62, according to NASDAQ.com. Then to calculate the Expected Return of Equity for Shareholders we assume:
rRF = 3.00
b = 0.62
3.00%+7.5% × 0.62=7.65%
For the Expected Annual Appreciation of Spirit Airlines Common Stock, we can’t calculate it at the moment because they don’t have any dividend yield reported in their 10-Q, which means they are not paying dividends at the moment.
PRICE OF THE IPO AND P/E MULTIPLE
On June 11th, 2011, the company raised $187.2 million of gross proceeds from an initial public offering of 15.6 million shares at 12.00 per share. The resulting proceeds to the company were approximately $176.9 million dollars after deducting the underwriting costs.
Currently the stock price of the company is at $17.14 per share and the most current EPS is 1.41. Therefore the P/E Multiple is: $17.141.41= 12.17
Keeping this in mind, then the investors of Spirit Airlines are willing to pay $54 dollars for every dollar of earnings that Spirit Airlines make. The day Spirit went public had a complete success. The 15.6 million shares that were offered that day were sold. USE OF THE MONEY RAISED ON THE IPO
After the company received the $176.9 million dollars (underwriting costs were...