Broadcom, Nu Skin Enterprises, Priceline, Expedia and TripAdvisor highlighted as Zacks Bull and Bear of the Day

For Immediate Release

Chicago, IL – March 10, 2016– Zacks Equity Research highlights Broadcom Limited AVGO as the Bull of the Day and Nu Skin Enterprises NUS as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Priceline PCLN, Expedia EXPE and TripAdvisor TRIP.

Here is a synopsis of all five stocks:

Bull of the Day:

Do not be confused by the new "hybrid" name Broadcom Limited ( AVGO) because this is simply the same old technology powerhouse that Avago investors have known for years -- only it's bigger and better with the completed $37 billion acquisition of Broadcom BRCM last quarter.

Based in Singapore, Broadcom Limited is a premier designer, developer and global supplier of a broad range of analog semiconductor devices and digital, mixed-signal and optoelectronics components and subsystems. Broadcom products primarily serve four target markets: Wireless Communications, Wired Infrastructure, Enterprise Storage, and Industrial & Other.

Not Your Average Chip Maker

And AVGO is back to a Zacks #1 Rank after strong guidance about the merger as analysts respond with raised EPS estimates and price targets.

Given the more powerful lineup of Enterprise Wired and Mobile Wireless products, plus the cost synergies, analysts raised the Zacks consensus for the first full fiscal year of the combined companies (ending October 2017) from $9.66 to $11.10 in the past 60 days.

That 15% bump represents over 20% EPS growth in that fiscal year, reflecting a sub-13X P/E multiple for a keyApple supplier in mobile and strong broadband network builder for top global enterprises.

Strength in Numbers

I have owned AVGO for nearly two years now for the Zacks FTM Portfolio and was happy to buy more during the correction of January. My belief was that large-cap Technology stocks would hold up the best, although that wasn't true for the widely-held AAPL. My instructions to my followers have been to always buy it anywhere near $120 and we received several great swing trading opportunities in Q4 and Q1.

Bear of the Day :

Nu Skin Enterprises (NUS) is another great example of a stock with strong downward earnings momentum that the Zacks Rank nailed perfectly and warned you to stay away from plenty early.

I last wrote about Nu Skin as Bear of the Day in December. Here's what I said then...

"Although NUS had been a Zacks #4 Rank (Sell) quite often in the first quarter of 2015 when shares were trading near $60, it didn't become a #5 Rank (Strong Sell) until May after the company's first quarter report disappointed investors.

"Since then, shares have plummeted from $51 to $31. And NUS has consistently been a #5 Rank during that drop, reminding investors and traders to keep selling, before and after their 3rd quarter report on October 29."

Fast forward to their 4th quarter report on February 11, and we finally saw the stock drop below $30. Shares have bounced into March but the earnings estimates outlook has only deteriorated.

In the past 30 days, the Zacks consensus for 2016 EPS has dropped from $3.18 to $2.44, a whopping 23% decline resulting in -13% "growth" for the year. And 2017 EPS projections have fallen from $3.42 to $2.66, a 22% slide for just +9% growth.

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You Should Sell Expedia and Buy Priceline Instead

Priceline (PCLN) and Expedia ( EXPE) are the two giants in the online travel booking space commonly referred to as OTA. There are however many other players here, including TripAdvisor ( TRIP), Airbnb and more recently Google Destinations.

Despite the billions of dollars in sales the two leading players generate, their combined share is just a fraction of the global online travel booking market. The rest of the market is highly fragmented with many other smaller players as well as offline operators. So both the transition from offline to online booking and the acquisition/elimination of smaller players presents good growth opportunity for the market leaders.

The question that then arises is, why are we so positive about Priceline, which has a Zacks Rank #2 (Buy) and so negative about Expedia, which has a Zacks Rank #5 (Strong Sell)? That is what we will be discussing here.

Expedia Gross Margins Weaker

While both companies are seeing very strong demand, Expedia has more dollar-denominated sales, so it is less affected by foreign exchange fluctuations. So its gross margins should be stronger.

But while gross margins of both companies are rising, Priceline's margins have moved from 78% to 93% in the last three years, while Expedia's have moved from 78% to 84%.

The primary reason this has been possible is Priceline's mix of agency business (50% to 71% of total revenue in the last three years. Contrast this with Expedia's agency business mix (21% to 28% in the last three years). Under the agency business model, a company doesn't need to maintain inventory and therefore doesn't need to manage the related costs, with a corresponding positive impact on the gross margin.

Expedia Operating Costs Rising

Expedia has embarked on a large number of acquisitions to strengthen its position in the domestic market and expand internationally. But while this has increased its topline, it has brought on board a variety of different businesses that have to be integrated into its core.

Moreover, these businesses also require separate marketing and promotion costs, which could be one reason these costs are rising exponentially. S&M costs at Expedia have jumped from 42.7% of sales in 2012 to 50.7% in 2015. For Priceline, however, these costs grew from 28.6% of sales in 2012 to 36.5% in 2015. Priceline is also investing to build its brand in the domestic market, but its spending has so far been commensurate with revenue.

Expedia May Have Fallen Behind In Vacation Rentals

When Expedia acquired HomeAway last year, the two companies had already been working together for some time. So it was surmised that some of the integration had been ongoing. The HomeAway business had previously operated as a listing service, but Expedia needed to change the model to a bookings-based one, which naturally required time, effort and money.

But Expedia was late to the vacation rental space so had to spend $3.9 billion on the deal and make do with whatever leverage that money could buy it. Priceline had already built its own platform Villas.com by that time and Airbnb was already a rage. This market is still relatively nascent and the exact way forward isn't clear. But Expedia was definitely late to realize the opportunity, which says something about management as well.

Expedia China Profits Limited

The slowing economy and rising competition in China forced Expedia to pull out of the China travel market. Having sold its stake in the Chinese company eLong to Ctrip, Expedia entered into an agreement with Ctrip. According to the agreement, Expedia will still benefit from inbound travelers from China as Ctrip will use its available inventory in the U.S., but it won't enjoy the benefits of growth in the China travel market itself.

In contrast, Priceline increased its stake in Ctrip, which went on to buying stakes in several other Chinese companies to lower price competition between them. This is likely to be beneficial for Priceline in the long run.

Price Also A Factor

Comparing the share price volatility of the two companies:

Priceline appears to be showing resistance when moving down (price moved +0.61% YTD, +0.19% in the last six months, -1.62% in the last three months and up 31.7% in the past month).

In contrast, Expedia shares have been far more volatile (-15.64% YTD, -8.39% in the last six months, -16.53% in the last three months and up 14.56% in the past month).

After moving around such as lot, Expedia shares are still slightly more expensive, i.e. price to earnings growth ratio PEG of 1.18 compared to Priceline's PEG of 1.07.

Bottom Line

Online travel is hot right now, but investors looking for exposure to the segment will find the going far easier if they consult our Zacks Rank methodology.

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