Brussels Attacks Strengthen Bull Case for Travel Stocks (EXPE, PCLN, TRIP)

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Priceline Group Inc (PCLN), Expedia Inc (EXPE) and TripAdvisor Inc (TRIP) took a hit after the terror attacks in Brussels Tuesday morning, and that offers a chance to buy the dip.

Brussels Attacks Strengthen Bull Case for Travel Stocks (EXPE, PCLN, TRIP)

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The early action on PCLN, EXPE and TRIP comes as no surprise. It’s typical of traders to have a knee-jerk reaction to such news.

Fundamentals don’t matter in this kind of situation. Traders sell because they know other traders are going to sell too.

Sure, there’s a chance that the latest horror in Europe could have a depressing effect on the travel industry ahead of the important summer season, but it probably won’t. We’ve seen these atrocities happen before without a lasting material threat to the industry. It takes something like a 9/11 to really wreck the travel market.

As a result, this could be the time to buy Priceline, Expedia or TripAdvisor if you’re optimistic about the names. There’s a bull and a bear case for every security, so let’s take a close look at equity in Priceline, Expedia and TripAdvisor.

Expedia (EXPE)

The attacks in Europe actually make the bull case for EXPE stock a bit stronger. Unlike Priceline, Expedia is a primarily a domestic travel play. Heavy exposure to the U.S. market helps insulates the company from global terror. Importantly, it also spares the revenue pressure created by a strong dollar.

Another big benefit of EXPE’s domestic footprint is that it’s tied to improving macroeconomic trends here at home. The economy is expanding. Unemployment has fallen to near “full employment” levels. Wage growth, while not great, is headed in the right direction and cheap gas puts more discretionary dollars into travelers’ pockets.

Lastly, EXPE stock has a compelling relative valuation. At 16 times forward earnings, Expedia stock is cheaper than the S&P 500 despite having much stronger growth prospects. It also trades at a discount to its own long-term forward price-to-earnings ratio, according to Thomson Reuters Stock Reports.

Priceline (PCLN)

Priceline’s growth is tied to its massive international expansion, which makes it more vulnerable to global terror. That risk, however, pales in comparison to the deleterious effects of a strong dollar.

For example, in the most recent quarter, forex pressures cut gross travel bookings and gross profit by about 11 percentage points each.

And yet Priceline is still projected to achieve some impressive top-line growth. Revenue is projected to rise almost 17% this year and another 15%-plus in 2017, according to a survey by Thomson Reuters. Earnings per share are forecast to jump almost 17% in 2017.

Don’t forget that the other side of the strong dollar is that it makes travel to Europe and other international destinations cheaper for U.S. travelers.

With a forward P/E trading at discounts to the broader market as well as its own long-term average, you can make a pretty good valuation case for Priceline stock.

TripAdvisor (TRIP)

As a travel research company with a bookings option, TripAdvisor is a different beast from Expedia and Priceline, but it rides the same economic trends. The steep year-to-date sell off also means it could be spring-loaded for a rebound trade.

That said, TRIP is a tougher sell for bulls. The valuation isn’t cheap and the heavy short interest isn’t very reassuring even if it does set up the possibility of a short squeeze.

With a forward P/E of more than 26, TRIP stock is far more expensive than EXPE or PCLN in spite of far worse growth prospects. In short, it looks overpriced, and there are plenty of investors betting on that. Almost 14% of TRIP’s float is sold short. That’s a lot.

On the plus side, TripAdvisor beat Wall Street’s fourth-quarter sales and profits forecasts and shares have been building momentum ever since with higher highs and higher lows. Still, it’s hard to swallow that valuation.

As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.

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Article printed from InvestorPlace Media, https://investorplace.com/2016/03/expedia-priceline-tripadvisor/.

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