E-commerce and online media companies benefited from multiple expansions throughout 2020 and online travel agency stocks should benefit from similar trends in 2021, according to BofA Securities.
The Analyst: Justin Post upgraded Expedia from Neutral to Buy with a price target lifted from $132 to $153.
The Thesis: Investor attention will likely shift away from e-commerce stocks that will likely see decelerated growth in 2021, while OTA stocks should benefit from a rebound in travel booking in the back half of the year, Post said in an upgrade note.
While a full travel recovery will take time, the Street is willing to look forward to strong travel years in 2022 and 2023, the analyst said.
Investors looking for exposure to the OTA group may want to consider Expedia Group Inc EXPE over its peers including Booking Holdings Inc BKNG for three reasons, he said:
Related Link: Online Travel Agencies No Longer 'Growth Disruptors': Bernstein
1. Expedia's recent cost-cutting initiatives will translate to $1 billion in cost cuts and push its EBITDA margins to the high-20s versus 18% in 2019.
2. A cheaper valuation with the core Expedia business trading at three times EBITDA.
3. Upside potential of 78% for Expedia's stock versus a 37% potential gain for Booking.
EXPE Price Action: Shares of Expedia were trading down 0.78% at $131.37.
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