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Priceline
is scheduled to report their fourth quarter 2008 results after
the market closes on Wednesday, February 18. Based on our
analysis, we at
eChristianInvesting are expecting PCLN to report better than
expected results that exceed Wall Street’s expectations.
Analyst
Expectations
We are
forecasting revenues of $381.0 million and EPS of $1.08. This
would represent a 14% increase in revenues from last year’s
$334.9 million in the same period. The current analyst consensus
calls for revenues of $377.8 million and $1.05 EPS. On November
6, the company provided fourth quarter guidance of revenue
growth of 12 – 14% and $1.00 – 1.10 EPS.
The
company has done a remarkable job of consistently exceeding Wall
Street’s estimates. However, it is very clear the company is
facing some severe economic headwinds. Management acknowledged
on the last earnings call that they saw evidence of global
economic weakness in September and October. Clearly conditions
have deteriorated further since then.
Air travel
has declined significantly as consumers look to reduce spending
everywhere they can. However, Priceline is benefiting as traffic
to their site increased over 30% in the fourth quarter.
Even
corporate travelers are starting to become more cost-conscious
which we also believe is a positive for Priceline. Our checks
show that a number of businesses are now requiring their
employees to check Priceline.com before booking corporate
travel.
Visibility
into 2009 performance will undoubtedly be poor, but we would
surprised if management provided guidance below Wall Street’s
current consensus of 4% growth. In fact, we believe there is
upside opportunity (assuming of course that conditions don’t
deteriorate further).
Share
Performance
Priceline’s shares are down 4% since the beginning of the year.
In 2008, the stock fell 36%, inline with the 34% drop in the Dow
Jones index.
Valuation
Shares are
now trading at 12x consensus 2009 EPS estimates. This is a
slight premium to their domestic peer group. However, we believe
that Priceline’s superior business model merits a premium
valuation. Once we start to see meaningful recovery in the
economy, this stock will likely see a significant move higher.
Recommendation:
Buy with a $85 price target.
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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