Travel Stocks to Bump: Orbitz Worldwide (OWW)
It’s no surprise that Orbitz Worldwide (OWW) has been on the schneid this week in the wake of Monday’s Q1 earnings miss. OWW reported a loss of $5.9 million (5 cents a share) on $210.3 million in revenue; analysts had expected a loss of 2 cents a share on a top line of $205.5 million. While the company attributed the loss to a tax adjustment, the results still were a far cry from the same quarter in 2012, when OWW earned $1.34 a share on $202.9 million in revenue.
One notable opportunity, however: OWW acquired the assets of Travelocity Partner Network in February and is integrating those assets into its existing partner network.
Orbitz shares are up about 15% over the past year, but although OWW’s forward P/E of 14.2 looks comparatively attractive, its PEG ratio of 3.4 is the highest among major online travel stocks and suggests it might be overvalued. It doesn’t help matters that Goldman Sachs analyst Health Terry downgraded OWW stock to a “sell” in March, noting that “Orbitz has an incrementally higher risk profile due to slowing growth as it annualizes its white-label agreement with American Express (AXP), the expiration of its exclusive Kayak relationship, and contra revenue growth from its new loyalty program.”
Two other concerns: At a time when competitors like Priceline and Expedia are growing bookings in the 20% range, OWW reported only 3% growth in the first quarter. Second, while OWW’s acquisition of the Travelocity Partner Network assets eventually will strengthen its competitive position, costs associated with integrating TPN into its existing system could be a drain on earnings for the balance of 2014.
As of this writing, Susan J. Aluise did not hold a position in any of the aforementioned securities.