Priceline Slapped With A $2,000 Price Target

Kelly expects Priceline's 2017 room-nights growth to be 25 percent and 22 percent in the year after despite the "Law of Large Numbers." The analyst justified his estimates by noting: 1) a higher exposure to Europe and Asia-Pacific markets which are more fragmented and 2) growth of vacation rentals and software solutions, which make properties instantly bookable online.

Growth In Europe

Kelly also cited Priceline's growth prospects in Europe where recent surveys found that offline channels accounted for 45 percent of overall hotel bookings in the first half of 2016. Online travel agencies have faced intense competition scrutiny over the past years but this may now improve.

The analyst also suggested that a recent European Union Commission report could open up the hotel business to greater online competition which bodes well for Priceline's "best-of-breed demand-generation competencies." This would naturally add to the company's occupancy share and room-night growth profile.

Earnings Profile

Kelly also noted Priceline's move to re-define its non-GAAP earnings per share to include stock-based comp allows the stock to be a favorable comparison against even higher-quality consumer names.

Priceline's stock is trading at 20x the analyst's 2018 earnings per share estimate, which represents a discount to its lodging peers at 22x. The analyst added that the discounted valuation may not be justified since Priceline offers a better growth profile on a risk-adjusted basis.

Bottom line, despite Priceline's already existing large scale and tough comps, the analyst is confident in the company's ability to demonstrate a mid-teens earnings growth and maintain a P/E multiple in the low-20s range.

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