Why Priceline Is Expected To Beat Wall Street On Earnings

Feb.20.14 | About: The Priceline (PCLN)

Priceline.com Inc. (NASDAQ:PCLN) is set to report FQ4 2013 earnings after the market closes on Thursday, February 20th. Priceline.com is a website that allows users to bid on and purchase discounted travel items such as hotel stays and airfare. Recently newcomers such as Airbnb and HomeAway (NASDAQ:AWAY) have begun to grab a foothold in the industry with a new sales model, which allows private property owners to put empty rooms up for rent directly to travelers. While these newcomers are attempting to disrupt the hotel industry, recently both HomeAway and Priceline's peer Expedia (NASDAQ:EXPE) posted a stronger than expected quarterly earnings which is often an encouraging sign. Here's how investors expect Priceline to report Thursday.

The information below is derived from data submitted to the Estimize.com platform by a set of Buy Side and Independent analyst contributors.

(Click Here to see All Estimates for Priceline)

The current Wall Street consensus expectation is for PCLN to report $8.22 EPS and $1.524B revenue while the current Estimize.com consensus from 41 Buy Side and Independent contributing analysts is $8.37 EPS and $1.545B revenue. This quarter the buy-side as represented by the Estimize.com community is expecting PCLN to beat Wall Street on both revenue and profit.

Throughout the previous 6 quarters the consensus from Estimize.com has been more accurate than Wall Street in forecasting Priceline's EPS every time and has been more accurate on revenue 5 times. By tapping into a wider range of contributors including hedge-fund analysts, asset managers, independent research shops, students, and non professional investors, Estimize has created a data set that is up to 69.5% more accurate than Wall Street, but more importantly, it does a better job of representing the market's actual expectations. It has been confirmed by an independent academic study from Rice University that stock prices tend to react with a more strongly associated degree to the expectation benchmark from Estimize than from the Wall Street consensus.

Two weeks ago peer Expedia reported a better than expected quarter, beating Wall Street expectations on both the top and bottom line. In FQ2 we saw Expedia report a similar great quarter and analyst estimates for Priceline surged after hearing Expedia's numbers and ended up being extremely accurate compared to Wall Street. Timeliness is correlated with accuracy and often times the direction of analyst revisions can be a powerful signal about how a company will report. In the case of Priceline this quarter, analyst revisions are actually moving down despite Expedia's strong numbers. But it's also important to point out that the Estimize consensus began much higher than Wall Street's.

The magnitude of the difference between the Wall Street and Estimize consensus numbers often identifies opportunities to take advantage of expectations that may not have been priced into the market. In this case we are seeing an average differential compared to other quarters.

The distribution of estimates published by analysts on the Estimize.com platform range from $8.00 to $9.15 EPS and $1.480B to $1.655B in revenues. This quarter we're seeing a large distribution of estimates for PCLN.

The size of the distribution of estimates relative to previous quarters often signals whether or not the market is confident that it has priced in the expected earnings already. A wider distribution of estimates signaling less agreement in the market, which could mean greater volatility post earnings.

The analyst with the highest estimate confidence rating this quarter is anmikyoso who projects $8.46 EPS and $1.564B in revenue. In the Winter 2014 season anmikyoso is rated as the 32nd best analyst and is ranked 31st overall among over 3,850 contributing analysts. Estimate confidence ratings are calculated through algorithms developed by deep quantitative research which looks at correlations between analyst track records and tendencies as they relate to future accuracy. In this case, anmikyoso is making a bullish call expecting Priceline to beat the Estimize consensus on both EPS and revenue.

Unlike FQ2 2013, despite the better than expected quarter from Expedia, analyst revisions are actually declining going into Priceline's earnings release. With that being said, contributing analysts on the Estimize.com platform still expect Priceline to beat Wall Street expectations on both the top and bottom line.

Disclosure: No positions