Morgan Stanley Thinks Priceline Is Now Worth $1,300

In a report published Wednesday, Morgan Stanley initiated coverage on Priceline Group Inc’s PCLN stock with an Equal-Weight rating and a $1,300 price target. The target is based on the assumption that increasing room night competition will pressure the company’s top and bottom-line. Expecting lower EPS that the Street, and “slowing growth limiting multiple expansion,” the firm awaits a better entry point.

According to the report, the Street’s figures for 2015 are 3 percent too high. Morgan Stanley projects earnings of $55.77 per share, versus the consensus of $57.71. For 2016, the research firm is modeling EPS of $70.04, versus the Street’s $68.09.

The analysts are also concerned about profitability. They see increased direct competition pressuring Priceline’s top line – “hotel commission rates are under pressure (concessions are rising) leading to lower gross profit per room night, which will decelerate to +1% in '15 and +0.5% in '16 (below +2% in '14).” Moreover, they also expect an adverse impact of competition on the bottom line.

Finally, the specialists go over margins. To put it simply: “margins haven’t risen since 2011, and industry competition is only heating up...Why would they rise now?”