Is Price­line go­ing to $1,500?

Financial Mirror (Cyprus) - - FRONT PAGE - By Chris Lange

The Price­line Group Inc. (NAS­DAQ: PCLN) has made a strong push since Jan­uary. Strong earn­ings in Fe­bru­ary and a solid busi­ness plan for Price­line’s in­ter­na­tional ex­pan­sion have drawn the at­ten­tion of an­a­lysts. As a re­sult, Ar­gus ini­ti­ated cov­er­age of Price­line with a Buy rat­ing and a $1,480 price tar­get, im­ply­ing an up­side of 24% from cur­rent prices.

The firm also be­lieves that strong fourthquar­ter re­sults eased in­vestor wor­ries that for­eign-ex­change head­winds would cause growth in in­ter­na­tional bookings to slow. In the first quar­ter of 2015, in­ter­na­tional bookings are pro­jected to in­crease 17% to 24% in con­stant cur­ren­cies.

The five-year earn­ings growth rate fore­cast is 20%. In the past three years, Price­line has re­pur­chased $1.2 bln of its stock. In Fe­bru­ary, the board au­tho­rised a $3 bln share buy­back pro­gramme. Re­flect­ing in part share re­pur­chases, Ar­gus pro­jected 2015 earn­ings per share (EPS) of $60.20 and 2016 EPS of $70.50.

Shares ap­pear favourably val­ued at 16.5 times the Ar­gus 2016 EPS es­ti­mate, com­pared to the five-year his­tor­i­cal range of 8 to 24. The firm be­lieves the com­pany’s lead­ing po­si­tion in the global on­line travel mar­ket, his­tory of pos­i­tive earn­ings sur­prises and ex­po­sure to the grow­ing Chi­nese mar­ket war­rant a mul­ti­ple near the top of the his­tor­i­cal range. In view of the large un­tapped mar­ket for on­line bookings, the firm ex­pects the shares’ for­ward mul­ti­ple to move higher.

Price­line ex­pects the bookings for the first quar­ter of 2015 to grow 14% to 21% in con­stant cur­ren­cies. In­ter­na­tional bookings are pro­jected to in­crease 17% to 24%.

On Fe­bru­ary 18, Price­line re­ported fourth-quar­ter rev­enue of $1.84 bln and EPS of $10.85. Rev­enue and earn­ings were up 19% and 29%, re­spec­tively, for the quar­ter. The con­sen­sus es­ti­mates had been for rev­enue of $1.8 bln and EPS of $10.10. The pos­i­tive earn­ings sur­prise re­flected 27% higher in­ter­na­tional bookings in con­stant cur­ren­cies.

Price­line is will­ing to sac­ri­fice near-term mar­gins in or­der to grow over the next sev­eral years. Con­sid­er­ing the com­pany’s strong mar­gins, healthy cash bal­ance and rapid growth, Ar­gus con­sid­ers this a wise de­ci­sion. Ar­gus ex­pects rev­enue to in­crease 14% in 2015, to $9.6 bln. In 2016, driven by strong growth in bookings, rev­enue is ex­pected to rise 15% to $11.0 bln. De­spite weak for­eign cur­ren­cies, the firm ex­pects a higher vol­ume and modestly higher prices, helped by eco­nomic re­cov­ery in Europe.

On Mon­day af­ter­noon, shares of Price­line were up 2.7% to $1,191.89, in a 52-week trad­ing range of $990.69 to $1,329.90. The stock has a con­sen­sus an­a­lyst price tar­get of $1,362.36.

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