Earnings Recap: Orbitz Beats Street and Adds 20% on Week

Includes: OWW, PCLN
by: Wall St. Cheat Sheet

By Elliot Turner

Earnings: Q2 profits of $0.09 versus $0.05 consensus and $0.12 in 2Q09.

Revenue: Up 3% YOY to $193.5 million.

CEO Barney Harford noted:

Results were especially strong in business travel and in Europe… in particular we’re seeing the recovery led by the corporate travel sector.

Tthe average daily rate for hotel rooms climbed 3% in the quarter but is still down from 2008, giving travelers some good deals. Air fares rose about 20% in the quarter and were up 10% domestically in July and 17% internationally.

OWW looks to stop the downtrend.

(Click to enlarge)

Comment: On the heels of Priceline’s (NASDAQ:PCLN) home run quarter on Tuesday, Orbitz Worldwide (NYSE:OWW) stepped up to the plate Thursday and made some solid contact, beating estimates by over 80% and reporting YOY currency adjusted gross bookings growth of 18% versus a 12% YOY decline in 2Q09. Bookings grew 22% for Air and 9% for Hotels on total transaction growth of 5%. Operating margins, however, fell to 11.1% from 12%.

The travel and tourism industry has continued to rebound since getting torn apart last year, and this was reflected in OWW’s guidance. Management forecasted 3Q10 revenue growth of 3%-6%, 3Q10 EBITDA growth of 0%-6% and FY10 EBITDA of 5%-10%.

OWW traded up more than 17% on Thursday following the release, hitting highs of $6.04 before closing up about 8% at $5.57. Shares had already added more than 11% off of PCLN’s Q, making the week one of OWW’s strongest in a long time, adding more than 20%.

Shares have now traded up three weeks in a row on increasing volume and seem to be tracing out a solid cup-base. The breakout point sits at around $6.50 or $7.50 depending on how you want to trace out the pattern, but either way both are important technical levels. A move through $6.50 would position share to test $7.50, and a move through $7.50 would position shares to test the $8-range for the first time in 2010.

While PCLN is rather unquestionably a better company than OWW, one must account for the fact that shares of the former are priced for perfection. If you’d like to play the resurgence of the global travel and tourism industry via a beat up stock that may have a lot of room to run, OWW is definitely a solid way to do it. However, as always, with shares trading in the penny stock range, you should only pick them up if you’ve got the stomach for regularly occurring volatile price swings.

Disclosure: No positions