Bank Of America: Expedia Still A 'Buy.' Now Worth $125 Per Share

In a report published Tuesday, Bank of America analyst Justin Post reiterated a Buy rating on Expedia Inc (NASDAQ: EXPE) with a price target boosted to $125 from a previous $109 after the company sold its approximate 65 percent majority position in eLong, Inc. (NASDAQ: LONG) last week for $671 million."We view the transaction favorably as eLong was a drag on Expedia's consolidated profitability (over $100 million in losses) and the sale will simplify Expedia's consolidated financials, proving more clarity on P/E, free cash flow and EBITDA valuations," Post wrote.Post continued that $671 million valuation was higher than the $400 million value he previously assumed and highlights the ongoing shareholder friendly actions the company is taking. In addition, a scenario existed where Expedia would have had to contribute capital to eLong if its losses were to continue.On the other hand, Post noted that following the sale, Expedia's presence in the "large and growing" Chinese market is now "very limited" despite a cooperation agreement with Ctrip.com International, Ltd. (NASDAQ: CTRP). The analyst added that Priceline Group Inc (NASDAQ: PCLN) will have a "preferred" position with Ctrip and has a "better foothold" in China.Bottom line, Post's revised $125 price target factors in the cash from the eLong sale and a higher multiple for core OTA (online travel agency), Egencia and Trivago to reflect "strong shareholder focus" in addition to potential valuation creation from the Orbitz Worldwide, Inc. deal (not yet factored in to his valuation models) and the potential for estimate upside on a "strong" 2015 travel season.