Priceline.com: Expecting Weak Earnings

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 (EXPE) disappointing quarterly results (see conference call transcript) 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

Disclosure: none

Comments

[forest:]

You were dead wrong. PCLN beat guidance. Cautious outlook, but the stock is undervalued.

2008 Nov 06 04:15 PM