'Clear Skies' For Priceline As RBC Raises Target To $1,850

RBC Capital Markets has raised its price target on Priceline Group Inc PCLN following better-than-expected results for the third quarter, driven by continued strong hotel growth and international momentum.

“PCLN continues to benefit from strength of its brands, a diversified global footprint, and strong execution, and Macro factors this quarter were relatively benign,” analyst Mark Mahaney wrote in a note.

Quarterly Highlights

Among the key highlights, the company saw 26 percent growth in bookings and 29 percent upside in hotel room night, with EBITDA margin down only 70 basis points to 51.5 percent.

Further, the $941 million OpenTable write-down is not materially significant, as it represents only a small fraction of Priceline’s overall business. Similar to Expedia Inc EXPE, Priceline too is positive on macro growth.

Growth Potentials

Rating And Recent Performance

For the fourth quarter, the company guided pro forma EPS of $12.20–$12.80 and gross bookings growth of 16–21 percent.

Mahaney pointed out the company’s growth opportunities from China, vacation rentals, alternative accommodations, Latin America and business travel. On the industry front, the analyst believes the online travel could continue to grow solidly in a double-digit range for the foreseeable future.

Further, growth in Asia & LatAm, which together are approaching 20 percent of total bookings, should help sustain premium growth rates and diversify its exposure from cyclical macro weakness in Europe.

“PCLN still has a long runway – 65 percent of global room nights sold are still sold offline and PCLN itself only accounts for approx 10 percent of hotel partner room night sales. Which means that current growth rates should be sustainable for a substantial period,” Mahaney highlighted.

The analyst reiterated his Outperform rating on Priceline shares and raised the price target to $1,850.00 from $1,750.00.

Shares of Priceline closed Monday’s trading at $1,480.33. In the pre-market hours Tuesday, the stock is up 4.23 percent to $1,543.00, and at last check, shares were up 5.73 percent at $1,565.18.