Orbitz is scheduled to report Q208 results before the market opens on Monday, August 4. Based on our analysis, we at eChristianInvesting are expecting OWW to report disappointing results that fail to meet Wall Street’s consensus expectations.
We are forecasting revenues of $229.0M versus analyst consensus of $233.7M. This would represent a 3% increase in revenues from last year’s $223M in the same period. Expedia’s better than expected earnings this morning certainly showed that there is strength in the travel sector.
However, we feel that Orbitz reliance on domestic travel could cause its performance to falter more than its more diversified peers. In addition, the heavy debt load (currently $597M) saddled on its balance sheet prior to going public will continue to hurt the bottom line numbers. In a difficult credit environment, an over-leveraged growth company could quickly find its stock price falling dramatically.
To date, Orbitz’s shares have dropped over 29% even after gaining almost 20% this month. Travel stocks in general have been down this year, and we feel that Orbitz represents a distant third choice for investors looking to buy travel stocks (behind Priceline and Expedia).
Shares are now trading at 26x consensus 2009 EPS estimates. This represents a premium to their peer group. This premium valuation combined with the potential for disappointing quarterly results and the continued bleak outlook for the economy should continue to weigh these shares down for the remainder of the year.