Why SunTrust's Bob Peck Is Downgrading HomeAway

• The share price of HomeAway, Inc. AWAY has appreciated 16.85 percent over the past month, reaching a high of $32.63 on Monday.
• Bob Peck of SunTrust Robinson Humphrey has downgraded the rating on the company from Buy to Neutral, while raising the price target from $36 to $38.
• Given that the company has agreed to be acquired by Expedia Inc EXPE, Peck expects HomeAway’s shares to closely track Expedia’s share price performance in the near term.

Analyst Bob Peck explained that while the “ongoing transition to transaction-based model has been challenging, we continue to believe AWAY is a unique asset that is difficult to replicate,” while mentioning that on a growth adjusted basis, “the transaction values AWAY at a discount to the group, suggesting possibility of potential counter bids.”

HomeAway has agreed to be acquired at $38.31 per share, which includes $10.15 in cash and 0.2065 in Expedia shares. This is a 20 percent premium to HomeAway’s closing price. The acquisition is subject to the usual regulatory and shareholder approvals, and is expected to close in 1Q16.

Peck described HomeAway as a “unique asset going through business model transition.” The company is estimated to have 15 percent share of the vacations bookings market, which Peck believes “provides a large runway for growth.”

According to the SunTrust report, “The company has been transitioning its platform toward transaction-based model with online booking from a basic listings service, which has been challenging.”

HomeAway posted its Q3 revenues in-line with the consensus, with higher than expected EBITDA. Although the company has not provided the 2015 guidance, the 2015 and 2016 revenue and EBITDA estimates have been raised.