Priceline.com Incorporated (PCLN) reported fourth quarter and full year 2012 earnings on Tuesday, February 26th of $6.77 per share, ahead of analyst estimates of $6.53 per share. Bookings in the quarter increased 32.9% to $6.6 billion over the same period a year ago. Gross profit for 2012 was $4.1 billion, up 32.6%, with international operations accounting for almost 88% of gross profits. On a local currency basis, international operations saw gross profits increase 48% in 2012 compared with 2011. The company's EPS guidance of between $4.90 and $5.30 was largely in line with analyst estimates. Priceline also expects revenue growth of 17% to 24% in 2013 with the mid point of that range just ahead of analyst estimates. However, the company added that uncertainty surrounding worldwide economic conditions, particularly in Europe, will increase variability around its guidance. I believe Priceline has held up well against the worst of the global economic storm, and while the global economy might not come roaring back, better days will likely lay ahead.
From the valuation perspective, Priceline is fairly valued compared to its peers. It trades at higher multiples compared to Expedia Inc. (EXPE) and Orbitz Worldwide, Inc. (OWW), but that is justified by its higher margins and leadership position in the industry. Its high sales growth rate, 20% compared to 11.9% at Expedia help drive Priceline's PEG ratio down to 1.17, the lowest in this group. Also Priceline has agreed to acquire Kayak Software Corporation (KYAK), which has the fastest growth rate in this group. Kayak should add to Priceline's high growth rate as Priceline expands Kayak into new markets. I believe in Priceline management's decision to buy Kayak. Priceline does not make a lot of acquisitions, but it has a good track record. For example, Booking.com which was acquired by Priceline in 2005 now accounts for over 85% of revenue.
When looking at the chart of Priceline, the gaps, both up and down, indicate the market has not been able to accurately predict earnings. However, I believe the stock has been in a uptrend since the end of October, and that trend along with the strong earnings results today have been enough to lift the stock above resistance in the area around $680 per share. Furthermore, I believe the 50 DMA has provided support for the stock and the fact that it reached the 50 day today and has rallied off that level might indicate the uptrend will continue. Ultimately it is important that the stock rises above the $720 level where I believe there could be some resistance. Should Priceline fail to break above that level, I believe it could begin a pull back possibly back to the low $600's.
Priceline is a volatile stock so you could seek enhanced returns using options. Writing out the money covered calls can provide a significant yield; for example, a July call about 5% out of the money could provide a maximum annualized return of over 11%. Another option would be to write a pull spread around the $600 per share level as I believe that is an area of strong support.
Data sourced from: Company filings, and Yahoo!Finance. Chart from: Freestockcharts.com