Margins The Only Page Missing From The Priceline Best-In-Class Story

Bank of America Merrill Lynch reiterated its Buy rating on Priceline Group Inc PCLN and raised price objective to $1,715 from $1,580 on the company’s strengthening position in travel industry, and higher quality earnings.

Q3 In Review

Priceline’s third-quarter EPS of $31.18 came in ahead of the Street at $29.86, with room-night growth accelerating to 29 percent in the quarter.

“We view PCLN’s bookings trends and commentary, along with 4Q booking and room night growth guidance, as positive, particularly given sluggish competitor bookings and room night growth, and we think Priceline continues to improve its competitive position,” analyst Justin Post wrote in a note.

Guidance

Priceline guided fourth-quarter bookings growth of 16–21 percent and room-night growth of 20–25 percent, above BofA’s respective 18 percent and 20 percent forecasts at the high end.

The company expects fourth quarter gross profit growth at 13 percent – 18 percent (vs. 22 percent in 3Q) and it is above BofA’s 16 percent forecast and the Street, at 17 percent.

The company noted that fourth-quarter margins assume performance marketing ROI deterioration toward the end of the quarter.

Analyst's Take

“[W]e think 4Q is set up for a margin beat vs guidance given solid 3Q trends,” Post continued.

Although Priceline’s outlook suggests some margin pressure in the fourth quarter, the analyst sees the company solidifying its position in global travel arena on healthy room-night share gains and potential conservatism in the fourth-quarter outlook.

”We remain positive given: 1) A strong share shift to OTA bookings despite macro concerns, 2) Strong track record of execution/upside vs industry; and 3) Positive room night trends despite competitive fears (lack of impact from hotel site price discounting),” Post highlighted.

The analyst also raised his 2016 revenue forecast to $10.7 billion from $10.6 billion, while he lowered full year 2016 EPS view to $64.50 from $67.54 to reflect a change in accounting for historical SBC. For 2017, the analyst increased his EPS estimate to $74.63 from $73.62.

At the time of writing, shares of Priceline rose 6.63 percent to $1,578.53 after hitting a new 52-week high of $1,586.59.