Trip Canceled: MKM Partners Downgrades Priceline On Near-Term Concerns

The prospects for online travel agency Priceline Group Inc PCLN have left a sell-side analyst concerned in the near term.

The Analyst

MKM Partners analyst Rob Sanderson downgraded shares of Priceline from Buy to Neutral and lowered his fair value estimate for the shares from $2,225 to $1,850.

The Thesis

The online travel sector is confronted with a multitude of uncertainties, many of which are likely to take several quarters to resolve, Sanderson said in a Thursday note. (See Sanderson's track record here.) 

Sanderson identified four concerns he has with Priceline: 

• A decision to shift spending away from performance into brand advertising, where payback periods are longer and less tangible.
• Incremental investments in the vacation rental business, where economics are less favorable then hotels.
• Bookings growth slowing to post-recession lows.
• A Street expectation that EPS growth will re-accelerate in 2019. 

Sanderson also expressed concerns over the near-term outlook for the online travel agency sector generally, such as decelerating room night growth that could suggest supply issues and the prioritization of business travelers over leisure travelers by hotel chains. 

Despite the downgrade, MKM Partners considers Priceline a premium assert in the travel sector due to its geographic exposure, the strongest marketplace dynamics in the sector and better management, Sanderson said. 

The valuation is attractive, given the stock's 9-percent decline since its Q3 report and the 16-percent drop since the Q2 report. On another positive note, Sanderson said the company is a big beneficiary of potential tax reform, as it holds about $15.9 billion in cash overseas.

The Price Action

Priceline shares are up about 16 percent year-to-date.

At the time of writing, the shares were down 1.59 percent to $1,691.68.

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