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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