Priceline.com Inc. (PCLN) and Expedia Inc. (EXPE) are two online travel companies, with solid growth and strong ROE. Both stocks had received positive calls from analysts recently and will be reviewed fundamentally and technically in this article. Investing strategies will also be presented.
PCLN was down 0.52% and closed at $683.99 on March 21, 2013. PCLN had been trading in the range of $553.42-$774.96 in the past 52 weeks. PCLN has a market cap of $34.11B with a beta of 1.29. With estimated 19.51% annual EPS growth for the next 5 years, PCLN still has more room for upside.
On March 21, 2013, Evercore Partners assumed coverage on PCLN with an overweight rating and a price target of $850.00. Analysts currently have a mean target price of $819.08 and a median target price of $822.50 for PCLN, suggesting 19.75%-20.25% upside potential. Analysts, on average, are estimating an EPS of $5.28 with revenue of $1.28B for the current quarter ending in March, 2013. For 2013, analysts are projecting an EPS of $38.61 with revenue of $6.51B, which is 23.70% higher than 2012.
PCLN had announced a new long-term agreement with United Airlines, owned by United Continental Holdings Inc. (UAL), where Priceline.com customers will continue to have access to United fare content, and United and priceline.com will work together to develop innovative ancillary products and services to be delivered through the United Technology Application.
There are a few positive factors for PCLN:
- PCLN is international focused and has a stronger growth rate compared to its peers
- PCLN continues to expand through acquisitions, including the recent acquisition of Kayak software
- Higher revenue growth (3 year average) of 31.0 (vs. the industry average of 2.7)
- Higher operating margin of 34.8% and net margin of 27.0% (vs. the industry averages of 13.4% and 9.1%)
- Stronger ROE of 43.9 (vs. the average of 10.1)
- Lower debt/equity of 0.2 (vs. the average of 0.5)
- PCLN has a total cash of $5.18B and a total debt of $1.46B
- PCLN generates a strong operating cash flow of $1.79B with a levered free cash flow of $1.48B
Technically, the MACD (12, 26, 9) indicators is showing a bearish trend, and the MACD difference continues to diverge. RSI (14) is decreasing and indicating a slightly bearish lean at 40.80. PCLN is currently trading above its 200-day MA of $644.20 but has been struggling closing above its 50-day MA of $692.04. The next support is $665.28, the S1 pivot point, as seen from the chart below.
How to Invest
PCLN remains a great long-term buy. However, PCLN is weak now, technically. It is important to see if PCLN can break above its 50-day MA to determine its near-term direction. Investors can also review the following ETFs to gain exposure to PCLN:
- Nasdaq Internet Portfolio (PNQI), 7.32% weighting
- DJ Internet Index Fund (FDN), 5.13% weighting
- SPDR MS Technology (MTK), 3.08% weighting
EXPE was down 2.13% and closed at $61.93 on March 21, 2013. EXPE had been trading in the range of $30.97-$68.09 in the past 52 weeks. EXPE has a market cap of $8.38B with a beta of 1.69. Despite slower growth compared to PCLN, EXPE offers a good mix of growth (estimated annual EPS growth of 13.46% for the next 5 years) and income (P/FCF of 9.71).
On March 21, 2013, Evercore Partners assumed coverage on EXPE with an equal weight and a price target of $70.00. On March 19, 2013, JMP Securities initiated coverage on EXPE with a market perform. Analysts currently have a mean target price of $73.33 and a median target price of $73.00 for EXPE, suggesting 17.88%-18.41% upside potential. Analysts, on average, are estimating an EPS of $0.23 with revenue of $964.26M for the current quarter ending in March, 2013. For 2013, analysts are projecting an EPS of $3.47 with revenue of $4.65B, which is 15.30% higher than 2012.
On March 12, 2013, EXPE completed its acquisition of 61.6% of the fully-diluted equity of trivago GmbH, a leading hotel metasearch company, paying approximately €434M (US$564M) in cash and agreeing to issue a total of 875,200 shares of Expedia, Inc. common stock over five years. By providing one of the best hotel search user experiences and gaining tremendous brand recognition in Europe, trivago will help EXPE expand into Europe.
There are a few positive factors for EXPE:
- Higher revenue growth (3 year average) of 10.9 (vs. the industry average of 2.7)
- Stronger ROE of 12.5 (vs. the average of 10.1)
- EXPE has a total cash of $1.94B and a total debt of $1.25B
- EXPE offers an annual dividend yield of 0.84%
Technically, the MACD (12, 26, 9) indicator is showing a bearish trend, and the MACD difference continues to diverge. RSI (14) is falling and indicating a strong selling momentum at 39.38. EXPE is currently trading above its 200-day MA of $56.57 but below its 50-day MA of $64.43. The next support is $60.90, the S1 pivot point, followed by $57.89, the S2 pivot point, as seen from the chart below.
How to Invest
EXPE remains a good pick for investors seeking a mixed income and growth. However, in the short-term, EXPE is technically weak. For long-term investors, it is safer to establish the long-term position after seeing further price stabilization. Investors can also review the following ETFs to gain exposure to EXPE:
- Nasdaq Internet Portfolio , 3.88% weighting
- Dynamic Consumer Discretionary (PEZ), 2.50% weighting
Note: All prices are quoted from the closing of March 21, 2013. Investors and traders are recommended to do their own due diligence and research before making any trading/investing decisions.