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Priceline lets you “Name Your Own Price” and its working.

|Includes: Booking Holdings Inc. (BKNG)
Shares of PCLN are up over 120% YTD.  The company has become dominant in the U.S. and Europe for discount travel with plans to replicate their success in Asia.  Priceline is a global online travel company that offers its customers a range of travel services, including hotel rooms, car rentals, airline tickets, vacation packages, cruises and destination services.

We believe PCLN will continue to grow nicely but the stock has gotten ahead of the fundamentals.  As of 9/30/09, over 7 million shares were short with 9.3 days to cover.  Short interest peaked on 4/15/09 with 11.3 million shares short.  Much of the run in PCLN is likely due to shorts covering into the current market rally.  At some point, Priceline will revert back to more normal valuation and growth trends which will put pressure on the stock.

12 analysts cover Priceline with a median price target of 179.50.  FY10 average estimates are at 8.92 so at 19 times earnings you get a 169 fair value but we see this as the best case scenario.

Below are some of the issues facing PCLN:

Bulls in PCLN can take some comfort in the simple calculation of the FY10 analyst estimate times the earnings growth rate mentioned previously.

Bears can point to the erratic EPS trends to discount the 8.92 estimates for FY10 and beyond.  If you assume a 6.00 to 7.00 EPS for the next couple of years, the fair value is closer to 114 to 133.

We tend to agree with the bearish view at this point.

Disclosure: No Position