Expedia (EXPE) stock popped late Wednesday after regulators let the owner of travel-booking websites to close its $1.3 billion acquisition of Orbitz Worldwide (OWW), and a second surge on Thursday sent shares up 53% year-to-date to fresh all-time highs around $130.
And even now, EXPE stock still looks like a buy.
Consolidation in the online booking business has left EXPE and Priceline.com (PCLN) as the two biggest players in the industry by a wide margin. EXPE owns its eponymous site, as well as Travelocity, Hotels.com and Hotwire.com, among others. PCLN brands include Kayak, Booking.com and its namesake site.
Thanks in part to competition from Google (GOOGL), the Justice Department let Expedia’s latest takeover go ahead with no conditions. EXPE gets to keep all of its own assets, as well as those owned by Orbitz.
It’s a happy outcome for shareholders in both companies — regulatory concerns caused EXPE to push back the drop-dead date on the deal from August to November — and by the looks of the market’s reaction, it wasn’t a foregone conclusion.
Just look at what happened to EXPE stock. Expedia stock jumped more than 3% at the beginning of the trading session in an otherwise down open.
Indeed, shares even set a new intraday all-time high within minutes of the opening bell.
Expedia shares have had a remarkable year by any measure, but the performance against the broader market — EXPE stock is up 50% vs. a 3% decline for the S&P 500 — is doubly impressive.
EXPE Stock Set for More Market-Beating Performance
The market loves Expedia’s scale and fundamentals. As an acquisition machine, EXPE has a distinct competitive advantage over rivals like PCLN. Investments in its technology are also bearing fruit.
At the same time, the company’s top and bottom lines are growing smartly amid a period of industry expansion. In the most recent quarter, EXPE beat Wall Street’s sales and profit estimates, and — more importantly — hiked its outlook.
If earnings growth is the mother’s milk of stock prices, then Expedia stock should more than get its fill.
The Street expects earnings per share to rise by about a third next year on a drumbeat of low-double-digit revenue increases. Longer-term, analysts have a long-term growth forecast of nearly 19%.
In other words, EXPE is projected to increase earnings at a much faster rate than the broader market. It also has better growth prospects than PCLN.
That sort of outsized earnings growth easily justifies EXPE’s current valuation. Investors are paying 24 times forward earnings. That’s a good deal considering Expedia’s growth prospects.
With valuation in its favor, EXPE stock should be good for more market-beating performance over the intermediate to longer term.
As for the rest of 2015, it’s a good bet that it hasn’t topped out yet, either. At more than 11%, a sizable chunk of the float is sold short. If Expedia beats forecasts in the fall quarter — as it usually does — shares will likely benefit from a short squeeze.
Furthermore, we’re rapidly approaching the final quarter of the year. It’s only natural that investors chase performance, especially in a down year for stocks.
It wouldn’t be surprising if EXPE stock became more popular with money managers looking to play catch up in 2015.
Although the easy money has been made in EXPE this year, it still looks good for gains.
As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.
