Morgan Keegan Initiates Priceline.com At Market Perform (PCLN)

Morgan Keegan equity analyst Justin Patterson released a research report today on online travel agency Priceline.com PCLN. He initiated the stock at Market Perform with a $330 price target. The report cites a number of positive catalysts for PCLN, including its position in international markets as well as the company's significant operating leverage. The analyst wrote, "We believe Priceline stands to benefit the most from secular growth in online travel abroad as it already generates >60% of bookings from international markets. Overall, we expect Priceline's international bookings to grow at a rate of ~20% per annum through 2014E and see little risk to this estimate." The report also cites PCLN's significant operating leverage as a tailwind for the stock. Patterson writes, "Management is very disciplined on opex spending, resulting in a company with tremendous operating leverage. Incremental EBITDA margin was ~48% in Q2 and we expect to see further margin expansion in subsequent periods." While Morgan Keegan has a positive bias on PCLN in the long-term, the analyst initiated the stock at Market Perform because of valuation concerns and more difficult comps going forward. PCLN is trading at ~$312 which implies a forward multiple of around 21X. Morgan Keegan's $330 price target values the company at around 22X 2011E EPS. At current levels, there is not enough upside to the analysts' fair value calculation to warrant an Outperform rating. Morgan Keegan said that they would get more aggressive on a pullback to $280-$290.