Avoid Priceline Till European Recovery In Sight

Online, August 9, 2012 (Newswire.com) - Priceline (PCLN), a leading online travel agency, reported its 2Q2012 results yesterday, in which the company's EPS beat the Street's estimates by 6%, based on gross bookings. Revenue missed analyst estimates, but was up 21% compared with the same quarter last year. While things do not look that bad compared with last quarter's results, the company gave a weaker 3Q outlook than what analysts had expected.

Competition
Things look better for Expedia, which is more exposed to the U.S. According to STR Global, occupancy rates in the U.S. increased 3.3% (YoY) to 75.1% for the week ended July 28. Average daily rate or ADR was up 4.8% to $108.95.
Expedia was also able to beat both its revenue and EPS estimates in its latest quarterly results. In our last article, we mentioned that Priceline had consistently been beating its competitors in revenue growth, despite the tough competition it faces. Given the European situation, this might not be true in the short run.
On the other hand, the company's plans to expand in Asia Pacific, as well as the Americas, contribute to its PEG ratio of 0.92, compared with Expedia's 1.64. The company has announced an agreement with China's Ctrip.com, giving the latter customer access to booking.com's hotel portfolio. This move will help strengthen the company's position in the faster growing Asia Pacific region, which is served by Priceline's Agoda.

Valuation
Some sell-side analysts cut their price targets for PCLN today. Among them were JPMorgan (JPM), Deutsche Bank (DB) and Barclays (BARC). JPMorgan reduced its target by $120 to $650. Barclays cut the target price to $725 from $800. Both aforementioned names maintained their overweight rating. Deutsche Bank cut its target price from $713 to $675, while maintaining its buy rating for PCLN.

Source URL: http://seekingalpha.com/article/789901-avoid-priceline-till-european-recovery-in-sight