Goldman upgrades rating on Expedia

Goldman Sachs (GS) analyst Heath Terry upgraded his rating on Expedia (EXPE) to “buy” from “neutral.” Terry also raised his one-year target price on Expedia to $140 from $125, which represents an upside of ~24% from last Friday’s closing price of $113.09.

The analyst noted that the online travel agency is currently trading at a low valuation multiple, and given its growth potential, the stock is poised to gain significantly in 2019. In a note to clients, Terry wrote, “We believe we have seen evidence of this during recent periods where Expedia was able to drive bookings growth acceleration alongside leverage in ad spend,” CNBC reported. He added, “We also believe the stock’s relatively low trading multiple means it is likely to outperform in a tougher market environment for growth stocks.”

Goldman Upgrades Expedia’s Rating, Sees ~24% Upside in the Stock

Terry said that Expedia is poised to benefit from healthy travel demand and a tight supply environment. He also believes that TripAdvisor (TRIP) and Booking Holdings’ (BKNG) strategy of rationalizing ad spending puts Expedia in a better position. Additionally, Terry believes that consumer discretionary spending preferences are continuously shifting toward traveling, which should also benefit Expedia.

Valuation multiple

Currently, Expedia’s PE multiple stands at 20.90x. At its current multiple, the stock is trading at a premium valuation to its peers Booking Holdings and International (CTRP) and at a discount to TripAdvisor. Booking Holdings, Ctrip, and TripAdvisor have PE multiples of 19.67x, 19.19x, and 36.19x, respectively.

Based on analysts’ earnings forecast for the next 12 months, Expedia is trading at a hefty discount to TripAdvisor and, while at a premium to Booking Holdings. Expedia, Booking Holdings, Ctrip, and Trip Advisor have forward PE multiples of 16.96x, 16.64x, 23.71x, and 28.28x, respectively.

The PE multiple is widely used because of its simplicity, but it has some flaws. Earnings can be manipulated easily, which can make the multiple meaningless. Let’s compare these companies based on their EV-to-EBITDA (enterprise value-to-EBITDA) multiples.

Currently, Expedia has an EV-to-EBITDA multiple of 11.16x, which is lower than those of its peers. Booking Holdings, Ctrip, and TripAdvisor have EV-to-EBITDA multiples of 14.44x, 36.14x, and 23.80x, respectively.

Based on forward EV-to-EBITDA multiples, Expedia is trading at a hefty discount to its competitors. Expedia, Booking Holdings, Ctrip, and TripAdvisor have EV-to-EBITDA multiples of 8.66x, 12.88x, 17.89x, and 14.68x, respectively.

Expedia makes up ~2.5% of the SPDR S&P Internet ETF (XWEB).

Latest articles

19 May

Chinese Stocks are Getting Crushed


In the last month the CSI 300 is down 11.5%, much more than US indices.

JCPenney (JCP) is slated to announce its results for the first quarter of fiscal 2019, which ended on May 4, on May 21.

17 May

What to Know about the US-China Trade War

WRITTEN BY Mayur Sontakke, CFA, FRM

The key point of contention in the US-China trade dispute is the large trade deficit the United States runs against China.

On May 16, the Labor Department reported jobless claims for last week. Initial jobless claims fell by 16,000 to 212,000 for the week ended May 11.

Jeffrey Gundlach recommended investors take advantage of the volatility in interest rates at the recent Sohn Conference.

Tesla (TSLA) has fallen 4.2% as of 11:55 AM EDT on May 17. While US equity markets opened in the red today, they've recouped their losses.