Expedia: Zacks’ Bull of the Day Play

Expedia, Inc. (EXPEAnalyst Report) is perfectly positioned to capture the surge in travel from an expanding global middle class and cheaper gasoline prices. This Zacks Rank #1 (Strong Buy) is expected to produce double digit earnings growth in 2016

Expedia is one of the most recognizable online travel companies in the world.

It now has an extensive list of brands including Expedia.com, Hotels.com, Hotwire, Travelocity, Orbitz Worldwide, Egencia, Venere.com, trivago, Wotif Group, Expedia Local Expert, Classic Vacations, which handles luxury vacations, CarRentals.com, and Expedia CruiseShipCenters

Has Been Expanding By Acquisitions

On Sep 17, Expedia closed on its acquisition of Orbitz for about $1.6 billion. The third quarter included 14 days of results.

Management was upbeat on the possible synergies of the Orbitz acquisition and could see further upside than it already indicated before the deal closed.

In November of 2014, it closed on its $652 million acquisition of Wotif Group, a group of travel brands operating in Australia and New Zealand under the sites Wotif.com, lastminute.com.au, lastminute.co.nz and travel.com.au.

Wotif Group focuses mostly on hotel and air.

The Asia-Pacific region is still a key market for Expedia, despite selling its 62.4% stake in Chinese travel company eLong to Ctrip in May 2015.

The Chinese travel market is highly competitive and eLong was struggling.

Growth Continued in the Third Quarter

On Oct 29, Expedia reported third quarter results which actually missed on the Zacks Consensus for the fourth quarter in a row.

However, its metrics were solid including room night growth which acclerated to 36% year-over-year, excluding eLong. Domestic grew 25% while international jumped 50% year over year.

Revenue, excluding eLong, rose 16% year over year but if you exclude the impact of foreign exchange, it rose 27%. Gross bookings also jumped 21%, or 26% excluding foreign exchange.

The company added 14,000 properties to its portfolio during the quarter. Its total was 271,000, an increase of 29% over the year ago period.

Full Year Estimates Rise

Analysts have been cautiously optimistic all year on the travel companies, especially as gasoline prices have remained low.

The 2015 full year estimate has jumped to $3.40 from $3.29 in the last 90 days although analysts still expect Expedia to see a 5.1% decline in earnings this year.

But it’s a return to big growth in 2016 with earnings forecast to rise 46%. The Zacks Consensus Estimates has jumped to $4.96 from $4.55 in just the last 60 days.

Shares At New Highs

Expedia has been a big winner for investors over the last 2 years. Shares are at new highs.

But you’ll pay a high price for the shares now. Expedia has a forward P/E of 39.9. It’s peers trade with an average forward P/E of “just” 28x.

Yet Expedia has become a force in the online travel industry. For investors looking to buy into this space, Expedia is one that should be on the short list.

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Tracey Ryniec is the Value Stock Strategist for Zacks.com. She is also the Editor of the Insider Trader and Value Investor services. You can follow her on twitter at @TraceyRyniec.


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