Analysts Recommendation

This course has allowed me to analyze and value a company using tools such as Factset and S&P Capital IQ. I can now analyze financial statements, determine balance/sheets, develop ratios, forecast, and determine the company's overall value. I also developed the ability to research companies and compare them based on the metrics used throughout the project. With this knowledge, I can proceed and make a recommendation on whether to buy, hold, or sell Frontier Airlines.

Final Valuation

Figure 3.9: Overall Valuation of Frontier Airlines (ULCC)

Overall, the final valuation for Frontier Airlines was calculated at $12.15 per share, as seen in figure 3.9 above. The overall value estimate was derived from the Free Cash Flow and Market Multiplies. These two models reflected the true value of Frontier Airlines since the stock price was around $11.50 at the time of calculations. The Dividend Discount Model was excluded overall because Frontier Airlines does not initiate dividends. The ROPI model was excluded as an outlier because it doesn’t reflect the company’s true value since it’s negative.

The Free Cash Flow and Market Multiples Model contributed to an overall value estimate of $12.15. This accurately reflects as mentioned above because the stock price as of December 8, 2022, for Frontier Airlines is $12.34. This value suggests that the stock price is currently being traded at a slight premium and is still worth investing in the company as the premium is $0.15 above.

Investment Recommendation

After a complete analysis of the company, I recommend that investors use caution on purchasing Frontier Airlines due to the nature of the airline sector and the airline industry. Even though the overall value estimate is similar to the current stock price, there are underlying factors, such as Frontier Airlines dismantling their customer service phone line. The stock price is also very uneasy because of the Altman Z-Score of 0.85. The below z-score exhibits that the company is on its way to bankruptcy. The company has demonstrated through COVID that they converted more cash, indicating they may be preparing for the future or becoming wary. The company also has had a loss for the last two years, and Frontier has a low estimation for operating income. Frontier Airlines also has negative earnings per share, which is a cause of concern compared to competitors. The ROPI model also demonstrated some reasons for uneasiness. However, the analysts below have a different outlook.

Additional Analyst Recommendations (ULCC)

Figure 4.0: ULCC Broken Valuations. Source: Factset

As seen in the Broker Valuations figure 4.0 above, the estimation for Frontier Airlines is similar in line with other analysts. This table was derived from FactSet; the true value from analysts has Frontier Airlines being around $14.00 - $25.00. The value estimate of $12.15 aligned with Susquehanna Financial Group; however, no other analysts as they are $16.00 above. Susquehanna Financial Group is a trustworthy investment firm with an overall rating of 4.2 out of 5. Many analysts go against my recommendation; however, one analyst believes it is overweighted. Most believe Frontier Airlines is currently a buy-and-hold. However, with the underlying news, this still needs to be revised with possibly outdated ratings since it was in October and November before Frontier dismantled its customer service number.

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