Capitalizing on Enterprise Value Mispricing

Published August 14, 2020

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Key Takeaways


  • Recessions typically lead to depressed operating income for airlines, with commensurate enterprise value reductions. 

  • Weaker firms should logically see the largest enterprise value mark downs, as their operating income is hit hardest. 

  • The strongest U.S. airline, LUV, has seen its enterprise value marked down the most since the start of the Covid-19 pandemic. 

  • Meanwhile, the two weakest airlines, AAL and SAVE, are on pace to see their enterprise values slightly increase in 2020. 

  • We recommend owning LUV, as its exaggerated enterprise value decline this year is unwarranted and should recover. AAL and SAVE will likely see enterprise values move down through share price decline.



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