Expect Orbitz to Report a Disappointing Quarter

Nov. 7.08 | About: Orbitz Worldwide, (OWW)

Orbitz (NYSE:OWW) is scheduled to report third quarter 2008 results after the market closes on Monday, November 10. Based on our analysis, we at eChristianInvesting are expecting OWW to report disappointing results that fail to meet Wall Street's consensus expectations.

Analyst Expectations: We are forecasting revenues of $216.5 million and EPS of ($.01). This would represent a 2% decrease in revenues from last year's $221.0 million in the same period. The current analyst consensus calls for revenues of $226.4 million and $.01 EPS. The company has given no guidance. Expedia's (NASDAQ:EXPE) disappointing quarterly results last week highlighted the expected weakness in the travel sector. Although Priceline (NASDAQ:PCLN) was able to deliver better than expected quarterly results, it clearly acknowledged the deteriorating global economic conditions.

We expect that Orbitz reliance on domestic travel could cause its performance to falter even more than its more diversified peers. In addition, the heavy debt load (currently $596M) saddled on its balance sheet prior to going public will continue to hurt the bottom line numbers. In this difficult credit environment, an over-leveraged company like Orbitz has already seen its price fall dramatically and will probably see more of the same in coming months. Going into a very difficult 2009, we expect analysts to reduce their estimates to show a decline in revenues. We also expect the company to continue to post losses in 2009.

Share Performance: To date, Orbitz shares have fallen 63%. By comparison, the Dow Jones industrial average has fallen 34% this year, and the Standard & Poor's 500-stock index is down 38%.

Valuation: Shares are now trading at .3x consensus 2009 revenue estimates. This has been a very difficult year for travel stocks and we expect 2009 to be even more challenging. Although Orbitz's stock price has been battered this year and seems to have already priced in the difficult economic conditions, we still feel that it represents a distant third choice for investors looking to buy travel stocks (behind Priceline and Expedia).

Recommendation: Sell.

Stock position: None.