The worst may be over for Expedia Inc (EXPE) and EXPE stock after flirting with a new 52-week low about a month ago.
A Piper Jaffray analyst upgraded Expedia stock Thursday to “overweight” (buy, essentially) from “neutral” (hold), and lifted his target price, thanks to the earnings potential of a recent acquisition.
From the note to clients:
“We are upgrading EXPE to Overweight based on two factors: 1) Expedia’s acquisition of HomeAway, while not risk-less, should lead to EBITDA upside even after significant reinvestment of growth into OpEx, and 2) core Expedia is performing well and should drive sustainable mid-teens organic EBITDA growth.”
Piper Jaffray’s new price target on EXPE is $140 a share, up from $130. That implies upside of about 29% in the next 12 months or so. Yup, that’s a buy rating in any analyst’s book.
The upgrade comes at a good time for Expedia stock. It may nurture some recent momentum in an otherwise lackluster stock.
EXPE got a nice lift from the analyst action, but it has still been a disappointment so far this year. At $108, shares are off about 13% in 2016. As recently as Feb. 8, the stock closed at $91 and change.
However, the important point is that EXPE is now up more than 15% since Feb. 8 when it touched its one-year low. That kind of performance suggests the bottom has been found and upside has taken over.
Better Days Ahead for EXPE Stock
Indeed, on a technical basis, Expedia broke above its 50-day moving average Thursday, which is always an encouraging sign.
Perhaps the movement will get other analysts to rework their models. Collectively, they have a pretty bright view on EXPE.
On average, Wall Street expects full-year earnings per share to hit $5.21. That would be a 41% increase year-over-year. Next year’s forecast isn’t half bad either, with analysts predicting another 29% rise in EPS.
For what it’s worth, the Street’s mean target price of $131.46 implies upside of 21% in the next year or so. That’s not as bullish as Piper Jaffray’s target, but it’s still a bona fide buy.
Furthermore, Expedia stock looks like a bargain. Shares go for 16 times forward earnings but have a long-term growth forecast of 27% per annum.
That and other multiples are compressed for couple of reasons. For one thing, investors are worried about increased competition. Expedia is a giant, but so is Priceline Group Inc (PCLN). Moreover, the online travel business is hugely fragmented.
The other concern is that margins are under pressure because costs are rising as EXPE tries to build global scale.
It’s also worrisome that 11% of EXPE’s float is sold short. That’s kind of a lot.
Expedia stock looks tempting just going by valuation, but between the low earnings multiple and short float, it’s clear the market is skeptical.
The bottom may very well be behind Expedia stock, but don’t be surprised if gains remain hard to come by.
As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.
