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By: Brendan Gilmartin

Priceline.com (NASDAQ:PCLN) is scheduled to report 3Q 2012 earnings after the close of trading on Tuesday, February 26, with a conference call to follow at 4:30 p.m. EST. Priceline shares have been climbing higher in recent months, benefiting from stabilization in Europe, expansion in Asia and growth in the North American market. With the shares recently hurdling back above the 700-level, the market is pricing in a solid quarter. Anything less could be seen as a major disappointment.

Outliers And Strategy

Key measures for Priceline:

  • Non-GAAP Earnings Per Share: Priceline previously indicated it sees Non-GAAP net income in the range of $6.12 to $6.57 per share. The current consensus is above the high end of that range at $6.54 (high estimate on the Street is $6.87).
  • Revenues: In its prior release, Priceline indicated it expects 4Q 2012 revenue increasing 15% to 22% year over year ($1.0 bln). That would equate to about $1.15 bln to $1.22 bln. The estimate is $1.19 bln.
  • Adjusted EPS Guidance (3Q 2012): The forward outlook is critical for Priceline. The consensus is $5.14. (Yahoo Finance)

Given the recent run-up in Priceline shares, look for Non-GAAP EPS and revenues to come in toward the high end of forecasts. Also note that guidance typically drives the price action in the shares after the results are released.

Sympathy Plays: Expedia (NASDAQ:EXPE), Travelzoo (NASDAQ:TZOO), TripAdvisor Inc. (NASDAQ:TRIP) and Orbitz Worldwide (NYSE:OWW).

Recent News

  • 01/31: Morgan Stanley downgraded Priceline.com from Overweight to Equal-weight, and reduced the price target from $750 to $730, according to a report on StreetInsider.com. The firm cited growth concerns for the downgrade, along with increased customer acquisition costs, increased competition, and limited upside to the reduced $730 price target. The firm also cut earnings guidance for FY2013 and FY2014.
  • 01/03: Bank of America/Merrill Lynch upgraded Priceline.com to a Buy rating and increased its target from $690 to $770, according to a post on Benzinga.com. The firm cited several catalysts, including a modest recovery in Europe, the recently announced Kayak acquisition, and upside for its 2013 estimates.
  • 12/10: Deutsche Bank downgraded Priceline.com from Buy to a Hold rating and reduced the price objective from $800 to $710, according to a post on StreetInsider.com. The firm cited increased competitive dynamics heading into 2013, particularly in Europe.

Technical Review

Priceline.com shares recently rallied back toward the $700 level, before stalling out. Should earnings or forward guidance disappoint, look for initial support near $680, with downside risk to $670 (just above the 50-Day SMA), $650, and the 200-Day SMA near $640. Conversely, there is initial resistance at the aforementioned $700-level, followed by the January peak near $720. (Chart courtesy of StockCharts.com)

Summary

Priceline.com shares are up more than 10% YTD and fetching just 18.3x forward earnings in advance of the 4Q 2012 earnings release after the close on Tuesday. Bulls are quick to argue that Priceline dominates the online travel market, particularly on the international scene with a dominant foothold in Europe via Booking.com, along with assets in Asia. The recent lift in the share price is also attributable to the underlying pickup in the global economy and recently announced acquisition of Kayak.com. Despite this favorable backdrop, however, Priceline is facing increased competition, both domestic and abroad, along with rising marketing and customer acquisition costs. With that said, the bar is set pretty high ahead of the 4Q earnings release, leaving Priceline vulnerable to even the slightest missteps.

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Source: Solid Earnings From Priceline.com Look Priced In At These Levels