by Lawrence Meyers | February 15, 2012 11:07 am
With hotels reporting increases in all of their important operating metrics and business travel having returned, it seems like a good time to examine travel stocks.
I’ve already hit airlines (yuck) and hotels (yay!), but how about travel aggregators? You know, the websites that put your friendly travel agent out of business?
They make an awful lot of money, yet they all seem to offer the same product. Is any one of these stocks better than the others?
Expedia (NASDAQ:EXPE) has one big thing going for it right off the bat. Actually, it has two. The first is Barry Diller, who bought the company and then spun it off. He owns about 8% personally. The second is John Malone’s Liberty Interactive (NASDAQ:LINTA), who owns 26% of Expedia. When I see these two geniuses owning a company, I’m going to take a careful look at it.
The company is on solid financial ground, with $1.4 billion in cash and $1.25 billion in debt, with most of its $750 million revolver available. Expedia is a cash machine, generating $826 million from operations and $618 million in free cash flow. 2012 saw a 12% increase in transactions, a 10% rise in gross bookings, but the year still came in light on revenue. Earnings are expected to be flat this year, with 14% growth in 2013. This has more to do with marketing costs than with the travel economy. The stock trades at 12.5x estimates, and that’s probably fair given the cash it generates.
For some reason, I regard Orbitz Worldwide (NYSE:OWW) as an also-ran. It may be a branding issue because Orbitz came on the scene at the same time as Expedia. The company reports on Thursday, but at the moment it sits on $141 million in cash and $451 million in debt. It has a cash flow problem, though. Orbitz generated only $88 million in operating cash flow and only $40 million in free cash flow over the TTM. Private equity powerhouse Blackstone Group owns a 53% share. The company trades at $3.20, which is 30x this year’s estimates. I think I’d rather go with Expedia, given its stronger financial health and brand.
What about Priceline (NASDAQ:PCLN)? Obviously, it has a different business model and a brand made famous by Captain Kirk. Amazingly, after all these years, Priceline remains a growth stock. Earnings are set to jump 70% this year and 27% next year. The company is light on debt, with only $83 million, and heavy on cash, with a stash of $425 million. Priceline has always been a big free-cash-flow generator and has been steadily increasing it over the years, with $1.2 billion generated in the TTM, an increase of almost fourfold since FY 2008. Margins are amazing, with 23.59% flowing to the bottom line.
When you stack up Priceline’s growth rate, financials, brand, and ability to market its product in bad economic times because of its “name your own price” concept, it’s the best choice here. Priceline trades at 24x this year’s earnings, but given its growth rate, I have no problem paying up.
As of this writing, Lawrence Meyers does not own shares of any company mentioned. He is president of PDL Capital, Inc., which brokers secure high-yield investments to the general public and private equity. You can read his stock market commentary at SeekingAlpha.com. He also has written two books and blogs about public policy, journalistic integrity, popular culture and world affairs.
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