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The Multiple Based and Alternative Valuation methods allowed the exploration of Frontier Airlines and finding the intrinsic value. The alternative models were based on three concepts. The first model explored was the Market Multiples model. This multiplies approach is a valuation theory based on the idea that similar assets sell at similar prices. It assumes the type of ratio used in comparing firms, such as operating margins or cash flows. The second model explored was the ROPI model, which focused on net operating profit after tax (NOPAT) and net operating assets (NOA). ROPI measures from both the income statement and balance sheet in determining firm value. The Dividend Discount Model was used for predicting the price of Frontier Airlines stock based on the theory that its present-day price is worth the sum of all of its future dividend payments when discounted back to its present-day price.
Market Multiples Model
Market Multiples Model
Figure 3.5: ULCC Metrics & Multiples Compared to Major Competitors. Source of Data: ValueLine Reports (2025-2027)
Figure 3.6: Industry Averages & Implied Price for ULCC. Source of Data: Factset
The first alternative model explored was the Market Multiples Model. This model, as addressed above, focuses on the valuation theory based on the idea that similar assets sell at similar prices. The metrics in the chart focus on its competitors based on Sales Per Share, Cash Flow Per Share, Earnings Per Share, and Book Value of Equity Per Share. The values in the charts for the competitors were derived from the Valueline report for the 2022 Fiscal Year. The outliers in the graph are highlighted in RED. No outliers were chosen from Allegiant Airlines, as this is Frontier’s direct competitor, and their calculated values accurately reflected ULCC’s value. The Price to Sales, Market to Cash Flow, Price Earnings, and Price Book Ratio were calculated by taking the stock price of each company divided by each metric.
The industry averages for the 1st and 3rd Quartiles were calculated for each company with and without outliers. Based on the calculations in Market Multiplies, the implied price for ULCC is $7.15 per share. This valuation model is the most accurate because it resembles the current stock price of $13.803 per share. This model for ULCC is helpful because it represents outliers, shows how ULCC is doing compared to its competitors, and displays the airline sector as a whole. In conclusion, Frontier Airlines is performing worse than its competitors.
The overall value of $7.15 per share that was calculated in the Market Multiples Model outlies to investors that the stock is currently trading at a premium. However, based on this model, the actual value of ULCC is about $6.00 less than what it is trading for, so investors should be cautious.
Alternate Valuation Methods
Alternate Valuation Methods
Residual Operating Income Model (ROPI)
Figure 3.6: ROPI Model for ULCC Income Statement
Figure 3.7: ROPI Model for ULCC Proforma Statements
Figure 3.8: ROPI Model Valuation for ULCC
The next model explored was the Residual Operating Income Model (ROPI) focuses on Net Operating Profit After Tax (NOPAT) and Net Operating Assets (NOA). This measures the company’s earnings and the minimum required given their WACC.
The ROPI Valuation Model in the first figure focuses on the NOA, calculated based on the historical data pulled from Frontier’s Airline Balance Sheet for the Fiscal Year 2018 to 2021. First, the total assets for ULCC were taken directly from the balance sheet. After that, excess cash, operating current liabilities, and long-term operating liabilities were taken from the Free Cash Flow valuation. Next, the required NOPAT was calculated as a result of NOA * WACC and used as a comparison to the Actual NOPAT. For each fiscal year, ROPI was calculated by subtracting Required NOPAT from Actual NOPAT. After these calculations, ROPI was calculated by taking the average for fiscal years 2018 to 2021. ROPI was calculated as the average for fiscal years 2018 – 2021.
After ROPI was calculated, the Proforma Statement was determined over the next ten fiscal years (2022 to 2032). The time horizon was ten years because this was to remain consistent with the FCF Valuation. The forecasted growth rates were taken directly from the previous FCF valuation, and then ROPI was predicted for the next ten years. The calculation for ROPI for the next ten years was ROPI multiplied by one plus the growth rate for the current fiscal year. At maturity for Frontier Airlines in 2031, the value was added to ROPI to get a maturity value of ($19,348.26).
Finally, the Value Per Share in the figure, the ROPI, was used to calculate the value per share of Frontier Airlines. First, the Present Value of the Estimate ROPI was calculated as the NPV of WACC, and the 1-year forecasted ROPI values. Next, NOA and Excess Cash were subtracted to get the Firm Value. Then, the Value of Debt was subtracted to convey the Firm's Equity Value. Finally, Firm Equity Value was divided by # of Outstanding Shares to determine the Value of Frontier Airlines to get a value per share of ($54.82).
Dividend Discount Model
Dividend Discount Model
Unfortunately, Frontier Airlines has no dividend history, so the dividend discount model was unavailable.
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