Mark Mahaney Lowers Price Target for Expedia (EXPE)

Citigroup analyst Mark Mahaney explains his decision to lower his price target for Expedia (EXPE):

We are lowering our EXPE PT from $20 to $17. No change to our estimates, but our detailed review of sector fundamentals necessitated a revaluation of our EXPE valuation framework. Among the large- and mid-cap Internet stocks under coverage, EXPE is the only company with a material negative EPS outlook for 2006. Specifically, our estimates -- which are generally in-line with the Street -- call for a 16% Y/Y decline in EXPE's 2006 adjusted EPS. This implies far and away the weakest 2006 outlook fundamentals in our group.

Accordingly, we have lowered our 2007 valuation multiples from 17X to 15X (on a P/E basis) and from 10X to 8X (on an EV/EBITDA basis) to achieve our new PT of $17.

Despite the deteriorating fundamentals, the factors that keep us at a Hold rating here include: 12% FCF yield, a 20MM share buyback, secular growth in online travel, and leading brand & marketshare in North America (around 45%).

EXPE's Weak Current and Outlook Fundamentals Vs. Select Peers