Expedia, Inc. - Growth & Income

As the economic outlook continues to improve and less consumers take "staycations" and opt instead for real vacations, Expedia, Inc. (EXPE) continues to deliver solid results.

Although competitor priceline.com (PCLN) might be grabbing all the headlines these days (it is up more than 140% since July 1), Expedia has quietly delivered three consecutive positive earnings surprises. This has prompted analysts to revise their earnings estimates higher, leading to a Zacks #2 Rank (Buy). The company also has a strong balance sheet and trades at a PEG ratio below 1.0.

Third Quarter Results

Expedia reported third quarter earnings per share of 63 cents, beating the Zacks Consensus Estimate by 15%.

Revenue growth was a stellar 16% driven by a 14% increase in transactions as consumers resumed spending on vacations as the economy recovered. Worldwide hotel revenue climbed 14%, while worldwide air revenue was also 14% higher. Advertising and media revenue grew 40% driven by TripAdvisor.

The cost of revenue declined from 19.8% to 19.2%. Meanwhile, adjusted operating income was up 17%.

Outlook

Estimates continue to climb as the economy recovers and Expedia outperforms expectations.

The Zacks Consensus Estimate for 2010 is $1.59, corresponding to a 13% increase over 2009 EPS. The 2011 estimate is currently $1.85, equating to 17% EPS growth.

Fundamentals

Shares trade at 14.5x forward earnings, a discount to the industry average of 17.2x (and well below priceline.com's 26.4 forward multiple). Expedia's PEG ratio is an attractive 0.97.

The company produces strong cash flow and has over $1.5 billion in cash, cash equivalents and short-term investments on its balance sheet. It began paying a dividend in 2010 and currently yields 1.0%.

The company also spent $194 million in the third quarter buying back 8.2 million shares. Since 2007, Expedia has reduced its shares outstanding by 12%.

Expedia, Inc. is one of the world's largest online travel companies. It operates through a portfolio of brands including Expedia.com, hotels.com, Hotwire.com and the TripAdvisor Media Network.

The company is headquartered in Bellevue, Washington and has a market cap of $7.6 billion.

Todd Bunton is the Growth & Income Stock Strategist for Zacks.com.

 
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