Priceline Presents A Compelling Risk/Reward For Investors

UBS reiterated its Buy rating on Priceline Group Inc PCLN after the travel services company reported a solid earnings report, with beat across the board, and faster than expected growth in its one quarter forward commentary.

Analyst Eric Sheridan noted that Priceline has consistently exceeded competitors on an organic basis and currently books roughly double the number of room nights per year versus Expedia Inc EXPE. Further, Priceline's results appeared resilient against a backdrop of macro-related and travel safety concerns.

Analyst Commentary

“We believe Priceline presents a compelling risk/reward for investors looking for reliable growth and steady execution,” Sheridan wrote in a note.

Related Link: Turning Your Vacation Into A Stock Portfolio

Sheridan pointed out industry wide online travel penetration remains relatively low and Priceline (via Booking.com and Agoda.com) is well positioned to capture the additional share due to its strong international presence.

“[M]gmt commentary about alleviation of pressure (in forward quarters) on the RoI compression in performance advertising could (in our view) cause surprises to the upside on profitability in 2H '17 and 2018,” Sheridan continued.

Quarter, In Review: Postives, Negatives

Among the positives in the fourth quarter, the analyst liked better than expected room night growth of 31 percent and bookings growth of 26 percent. Further, the first-quarter guidance for room nights and bookings growth well above consensus estimates.

Among the negatives, first quarter EBITDA guidance was below UBS estimate of $550 million–$580 million. The quarter also saw merchant take rate falling about 600bps.

At last check, shares of Priceline had climbed 6.61 percent to $1,739.83 after setting a new 52-week high of $1,745.63. Sheridan raised his price target to $1,870 from $1,750.