Consumers don’t need to look very hard to find great online travel deals these days. A cheap price on airfare is always a click away. And you don’t need luck to find decent rates for hotel, either — even those serving free breakfast.
The Priceline Group Inc. (NASDAQ:PCLN) pioneered the online travel industry. As one of the mainstays from the dot-com bubble, PCLN has benefited from stringent cost-controls to deliver earnings that are still coming in at high double-digits.
PCLN continues to thrive where competitors have failed. However, the king of online deals doesn’t look like a great deal today.
Sure, PCLN stock has done well, up 12% for the year-to-date, against flat gains for the Dow Jones Industrial Average. But PCLN stock is also trading at 28 times earnings — seven points higher than the S&P 500.
And, by steadily improving its net income over the past five years, Priceline is getting plenty of analyst respect. PCLN stock is up roughly 90% over the past three years.
What’s more important to consider, though, are the quarters ahead. More specifically, what will PCLN say when it reports first-quarter earnings results Thursday?
Estimate Cuts Raise Concerns
Earnings per share are slated to come in at $7.72, marking a year-over-year decline of 1.2% from last year’s earnings of $7.81 per share. Analysts aren’t sure what to expect — and that doesn’t bode well for PCLN stock.
While the consensus number sits at $7.72 today, that’s down 11% from three months ago when estimates for the just-ended quarter was at $8.70. And just in the past 30 days, estimates fell again from $7.77. It’s possible analysts are still too bullish at $7.71.
Revenue, meanwhile, is projected to be $1.8 billion, up 9.6% year-over-year. Revenue has never been a challenge for PCLN. But a 9.6% increase would mark a considerable slowdown from the fourth quarter when revenue came in some 20% higher year over year. And this may point to why analysts have cut earnings estimates.
Obviously, the currency exchange issue that devalues sales in overseas markets remains a big deal. International booking growth, particularly in European is important to PCLN, and international travel makes up a big chunk of revenue. If the dollar remains strong, it could keep continued pressure on Priceline stock.
Sell PCLN Stock Before Everyone Else
To its credit, this isn’t new territory for Priceline; the company has overcome these challenges before. But seeing how quickly analysts are lowering estimates, coupled with conservative guidance by PCLN management, the risk/reward tips to the negative side, especially for an expensive stock. So heading into Thursday’s results, I wouldn’t bet on an earnings beat.
From my vantage point, the market appears ready to punish anything that projects weakness. And now’s not the time to wager on PCLN stock. Should PCLN stock sell off by 5% to 10%, which is likely, then it’s worth a look. But for now, investors should cancel their buy plans and wait for PCLN to issue guidance.
As of this writing, Richard Saintvilus did not hold a position in any of the aforementioned securities.
