3 Reasons To Stay Cautious On Priceline

Priceline Group Inc PCLN reported its third-quarter results, which came in better than expected but was accompanied with a concerning fourth-quarter guidance. The company also said it will be increasing its marketing spending.

The Analyst

Deutsche Bank's Lloyd Walmsley.

The Rating

Walmsley maintains a Hold rating on Priceline's stock with a price target lowered from $2,050 to $1,825.

The Thesis

Priceline's earnings contained various positives in the quarter, including improvements in performance marketing, better than expected room night metrics and a marketing plan to generate long-term growth and "deeper customer relationships," Walmsley said in a report. The company also boosted its free cash flow by 25 percent from a year ago to $1.8 billion and bought back $586 million worth of its stock.

At the same time, investors should remain cautious on Priceline's stock for three key reasons: 1) the company's fourth quarter guidance implies decelerating volumes, 2) incremental marketing spend would weigh on margins with an "uncertain outcome", and 3) uncertainty at the management level as the search for a new CFO remains ongoing.

Price Action

Priceline's stock was trading lower by more than 10 percent Tuesday morning, but is higher by 30 percent since the start of 2017.

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