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Priceline's Outperformance Will Be Limited; Goldman Sachs Remains Neutral

Priceline Group Inc PCLN reported its 2Q results significant ahead of expectations. Although the company is the best positioned Online Travel Agency [OTA], its stock outperformance is likely to be limited, Goldman Sachs’ Heath P. Terry said in a report. He maintained a Neutral rating on the company, while raising the price target from $1,250 to $1,400.

Priceline reported its 2Q bookings at $17.9 billon, representing 19 percent y/y growth. Ex-FX, bookings grew by 21 percent y/y, versus consensus estimate of 18 percent. Non-GAAP EPS came in at $13.93, beating the consensus expectation of $12.67.

The company achieved better-than-expected margins, despite 252bps of advertising deleverage, analyst Heath Terry mentioned.

Performance Ahead

Priceline guided to 3Q gross bookings growth of 14-19 percent, versus the consensus estimate of 18 percent. Terry pointed out that the company has a history of announcing conservative guidance.

The analyst considers Priceline as “the best positioned OTA,” given the company’s exposure to faster growing Asia, lower mix of chain hotel business, and relatively attractive multiple. He added, however, that outperformance would likely be limited “as structural changes at traffic sources force OTAs to sacrifice margins to maintain growth.”

The EPS estimates for 2016, 2017 and 2018 have been raised from $53.05 to $58.10, from $64.17 to $70.86 and from $75.39 to $81.89, respectively.

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