Priceline Earnings Preview: Fourth Quarter 2008

Priceline [[PCLN]] is scheduled to report their fourth quarter 2008 results after the market closes on Wednesday, February 18. Based on our analysis, we are expecting PCLN to report better than expected results that exceed Wall Street’s expectations.

 

Analyst Expectations

We are forecasting revenues of $381.0 million and EPS of $1.08. This would represent a 14% increase in revenues from last year’s $334.9 million in the same period. The current analyst consensus calls for revenues of $377.8 million and $1.05 EPS. On November 6, the company provided fourth quarter guidance of revenue growth of 12 – 14% and $1.00 – 1.10 EPS.

 

The company has done a remarkable job of consistently exceeding Wall Street’s estimates. However, it is very clear the company is facing some severe economic headwinds. Management acknowledged on the last earnings call that they saw evidence of global economic weakness in September and October. Clearly conditions have deteriorated further since then.

 

Air travel has declined significantly as consumers look to reduce spending everywhere they can. However, Priceline is benefiting as traffic to their site increased over 30% in the fourth quarter.

 

Even corporate travelers are starting to become more cost-conscious which we also believe is a positive for Priceline. Our checks show that a number of businesses are now requiring their employees to check Priceline.com before booking corporate travel.  

 

Visibility into 2009 performance will undoubtedly be poor, but we would surprised if management provided guidance below Wall Street’s current consensus of 4% growth. In fact, we believe there is upside opportunity (assuming of course that conditions don’t deteriorate further).

 

Share Performance

Priceline’s shares are down 4% since the beginning of the year. In 2008, the stock fell 36%, inline with the 34% drop in the Dow Jones index.

 

Valuation

Shares are now trading at 12x consensus 2009 EPS estimates. This is a slight premium to their domestic peer group. However, we believe that Priceline’s superior business model merits a premium valuation. Once we start to see meaningful recovery in the economy, this stock will likely see a significant move higher.

 

Recommendation: Buy with a $85 price target.

 

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