Piper Jaffray: Priceline's Negative Issues 'Stabilizing Or Becoming Positive,' Reiterates Overweight

Shares of Priceline Group Inc PCLN have dipped around 15 percent since its second-quarter print despite reporting numbers above Street estimates and issuing in-line guidance.

Michael Olson of Piper Jaffray commented in a note on Tuesday that the downward move in the stock actually began before the market sell-off, implying there is an overhang surrounding the name.

Olson is "optimistic" over the company's ability to grow its international bookings by more than 20 percent (FX neutral) over the next few quarters and in the high teens (or higher) over the next several years. The analyst justified his position by pointing out that demand will be driven by strength in international markets, most notably Europe's "macro-defying travel trends." In fact, the company's third-quarter guidance was "uncharacteristically" guided in-line with the Street's expectations – an indication of management's confidence in travel trends.

Olson further dove into Priceline's third-quarter guidance and pointed out its non-adverting opex deleverage appears to be showing "significant alleviation," implying approximately 110 basis points of less deleverage than what the company showed in the second quarter. Overall, its margins continue to be "compressed" due to investments in OpenTable and the BookingSuite. However, looking past the near-term, the analyst suggested operating leverage will return to the business in 2016 with 232 basis points of operating margin expansion.

Finally, Olson suggested that Priceline (and its peers) are branding themselves with travelers to create a "more Amazon-like relationship" rather than depending on paid sources like search. As an example, Amazon sources about 2 percent of its total desktop traffic from search versus Booking.com (one of Priceline's properties) at around 9 percent while an additional 10 percent of traffic comes from TripAdvisor. By forging a stronger relationship with customers, an increase in direct traffic will "take the emphasis off' of ad ROIs to brand traffic.

Shares were maintained at Overweight with an unchanged $1,540 price target.