Time to Sell Priceline? No Way: Analysts
Priceline hit a new high on Tuesday, jumping more than $40 on the heels of a strong fourth-quarter earnings report. Time to sell? No way, say analysts.
“Investors are starting to recognize what’s really going on here. This company has grown more than 50 percent over the last 10 quarters, and it trades at a 17 times multiple of 2013 earnings,” said Michael Olson, analyst at Piper Jaffray.
At 17 times valuation — meaning investors are paying 17 times the estimated earnings for the stock — the stock is relatively cheap, if Olson’s forecast is correct. He believes Priceline’s hot streak is “sustainable.”
The reason behind the streak, according to Priceline’s CEO Jeffery Boyd, is an increase in international hotel bookings, which are high enough to make an expected decline in European bookings less of a concern.
More specifically, opportunities in the emerging markets have Piper Jaffray giving Priceline an “overweight” rating in its portfolio.
“Given the penetration opportunity they have in emerging markets, we’re going to see growth north of 80 percent continuing there,” projected Olson, adding that “in 2013, we’ll see growth rates for the overall company north of 20 percent.”
Priceline said on Monday it expects revenue to increase by 22 percent to 27 percent in the first quarter, driving up income between $3.80 and $3.90 per share.
While he didn’t call the stock a “buy,” Olson thinks Priceline should trade at 20 times earnings multiple, up from its current level of 17.
And a 20 times earnings is “not that expensive,” said analyst Guy Adami, of Drakon Capital in a separate CNBC appearance.
“The obvious thing to say here is sell the rally, but I’m not going to say that. The valuations on this company, given that they’re doing so well, actually do make sense."
Additional News: Priceline Profits Top Expectations, Stock JumpsAdditional Views: We’re Targeting $685 for Priceline: Analyst
CNBC Data Pages:
- Dow 30 Stocks—In Real Time
- Oil, Gold, Natural Gas Prices Now
- Where’s the US Dollar Today?
- Track Treasury Prices Here
Michael Olson does not personally own Priceline. His firm, Piper Jaffray makes a market (matches buyers and sellers) in the securities of Priceline.com.