Priceline Group Inc (PCLN) caught a Wall Street upgrade to “buy” Wednesday, as analysts made a compelling bull case for outperformance on the part of PCLN stock.
Barclays lifted its rating on Priceline to to overweight (buy, essentially) from equal weight (hold) with a target price of $1,500.
That gives Priceline stock implied upside of about 10% over the next year or so.
Analysts average price target of $1,453 equates to implied upside of 3.2%, which is why much of the Street calls PCLN no better than a hold. But Barclays makes some important points about margin expansion due to more efficient ad spending. From Barclays note to clients:
“We believe take rates are stabilizing as the shift to the agency model is mostly complete, while we think margins will improve (in the long-term) as Priceline begins to shift ad spend to higher ROI channels, like Facebook (FB).”
PCLN Is on Sale
Just as importantly, Priceline stock has developed an attractive valuation vs. peers, as well as the S&P 500 Index:
“After a recent run-up in valuations across our coverage, PCLN still stands out to us as an inexpensive name relative to structural trends and expected growth. We believe there is a valuation disconnect from concerns that are either timing-related or mostly played out.”
PCLN stock currently trades at less than 18 times forward earnings, while its S&P subsector gets a forward price-to-earnings multiple of more than 27, according to Thomson Reuters Stock Reports.
Furthermore, PCLN is priced at the same forward multiple as the broader market, and yet it has superior growth prospects. PCLN’s long-term growth forecast is about 15% per annum, while the S&P 500’s less than half that.
Shares in Priceline are having a solid 2016, but it comes with an asterisk. The stock is up a market-beating 7% for the year-to-date, but it has traded sideways for four months. Perhaps Barclay’s new buy call can help break the inertia.
As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.
