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Priceline
is scheduled to report third quarter 2008 results after the
market closes on Thursday, November 6. Based on our analysis, we
at
eChristianInvesting are expecting PCLN to report
disappointing results that fail to meet Wall Street’s consensus
expectations.
Analyst
Expectations
We are
forecasting revenues of $542.3 million and EPS of $2.03. This
would represent a 30% increase in revenues from last year’s
$417.3 million in the same period. The current analyst consensus
calls for revenues of $549.0 million and $2.10 EPS. On August 5,
the company gave third quarter guidance for revenue growth of 30
– 35% and EPS of $2.00 – 2.15.
Expedia’s
disappointing quarterly results
confirms our belief that the travel sector has already begun
to experience the effects of a weakening economy. While
Priceline appears to be tracking better than their competitors,
they saw a noticeable traffic drop-off in September. We suspect
that this weakness is continuing into October as consumers have
become more focused on the economy.
We see
continued weakness in the travel sector into 2009 and only a
moderate recovery in 2010. American consumers are faced with the
gargantuan task of adjusting their over-leveraged balance
sheets. This will be no quick feat and will require painful cuts
in their spending habits which will provide challenges to
consumer-dependent companies like Priceline over the next few
quarters.
Share
Performance
To date,
Priceline’s shares have dropped 51% this year. Much of the drop
in Priceline’s share price has occurred over the last three
months as investors have come to grips with the severity of the
economic crisis we now face.
Valuation
Shares are
now trading at only 8x consensus 2009 EPS estimates. However,
the recent sell-off indicates that few believe these estimates
will stand for long. Expect analysts to cut their estimates
along with their price targets following the earnings report.
Recommendation:
Hold
At the time this article was published, the author did not have
a financial position in any of the stocks mentioned in this
article.
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