Priceline (PCLN) earnings exceeded Wall Street expectations, but unfavorable currency exchange led the largest online travel agency to cut its outlook, and that’s what the market really cares about when it comes to PCLN stock.
PCLN stock plunged as much as 10% as of this writing. Happily, anyone holding PCLN stock can find solace in the fact that it’s still up a market-crushing 15% for the year-to-date.
An alarming decline from its Nov. 4 all-time high is also a concern, but PCLN just seems to trade this way. Steep, brief selloffs are common as PCLN makes higher lows and higher highs. Shares typically break below their 50-day moving averages in the PCLN trading pattern, but they don’t stay there for long. (See the chart below, courtesy of Yahoo Finance.)
On the plus side, the stock hasn’t fallen below its 200-day moving average since July, and has remained comfortably above its 50 DMA on it’s last two drops. And after Monday’s morning action, shares are only about 3% above that key level, suggesting that the brunt of the selloff is done.
Click to EnlargeThat said, a forward-looking market always cares more about where the company thinks it’s going, and a surprisingly weak forecast won’t necessarily get baked into shares in a day.
PCLN Stock Slips on Outlook
For the most recent three-month period, PCLN enjoyed decent profit and sales growth. Higher hotel bookings and car rentals led PCLN earnings to rise to $1.2 billion, or $23.41 per share, up from $1.06 billion, or $20.03 per share, a year earlier.
On an adjusted basis, PCLN earnings came to $25.35, which easily topped analysts’ average estimate of $24.23, according to a survey by Thomson Reuters.
Revenue grew 9.4% to $3.10 billion vs. a Street projection of $3.05 billion.
PCLN — which owns Booking.com, Kayak and rentalcars.com, among other sites — attributed the solid showing to higher hotel bookings and car rentals. International bookings offset a decline in the U.S., which was sluggish in the previous quarter as well.
Also troubling is that, although hotel bookings and car rentals were the drivers of the quarter, they both slowed sequentially from the second to the third quarter.
Furthermore, as much as international was helpful in the third quarter, it was the key culprit for the disappointing current-quarter forecast. With the euro and pound falling against the dollar, it’s more expensive for European travelers to visit the U.S.
As a result, PCLN earnings are now projected to come in between $11.10 to $11.90 per share in the fourth quarter. Analysts were expecting current-quarter earnings of $12.42 a share. In other words, PCLN took a scythe to its profit outlook.
The same goes for the top line. Priceline sees sales growing 1% to 8%, which equates to revenue of $1.86 billion to $1.99 billion. The Street expected fourth-quarter revenue of $2.05 billion.
But taking a step back, it looks like PCLN stock will be just fine over the intermediate to longer term. The drop in price has brought the forward price-to-earning ratio to less than 20. That’s an atypically small premium for PCLN’s long-term growth forecast of 17% per year.
That suggests that value buyers will step in soon enough, just as they have in the past.
As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.
