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TripAdvisor Rose 5.7% Due to Rating Upgrade from Davidson

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Jun. 28 2019, Updated 10:39 a.m. ET

Rating upgrade

TripAdvisor (TRIP) shares rose 5.7% on June 27 after D.A. Davidson upgraded its rating on the stock to a “buy.” Davidson cited the company’s improving business fundamentals. The research firm turned bullish on the stock after over a year. Davidson initiated coverage on TripAdvisor in early 2018 with a “neutral” recommendation.

In a note to a client, Davidson analyst Tom White stated that TripAdvisor’s business has been showing signs of progress for the last several quarters. The company’s new products have helped reduce its dependency on ad spending by large online travel agencies (or OTAs) like Booking Holdings (BKNG) and Expedia (EXPE).

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According to the latest 10-K filing with the Securities and Exchange Commission, the contribution of Booking Holdings and Expedia’s platforms towards TripAdvisor’s total revenues fell to 37% in 2018 from 43% in 2017. White argued that the company’s sustained focus on introducing new products and monetization initiatives would sustain a favorable trend for the next few years and reduce the dependency on large OTAs.

White also noted that the stock has an attractive valuation multiple. TripAdvisor stock’s current PE ratio is more than 20% lower than its historical averages. According to White, it’s the right time to buy TripAdvisor shares. White maintained a target price of $55, which signifies a potential upside of 18% from the closing price of $46.58 on June 27.

Last week, SunTrust analyst Naved Khan upgraded his rating on TripAdvisor to “buy” from “hold.” Khan cited the strong revenue growth projection for TripAdvisor’s Experiences segment over the next several years.

Khan stated that the segment accounts for 30% of TripAdvisor’s total revenues. However, the division still isn’t reflected in the stock’s valuation. Khan thinks that the Experiences segment has the potential to grow 3.5x in the next five years.

Analysts’ recommendations

Analysts have a mixed view on TripAdvisor. They provided a consensus “hold” recommendation on the stock. As of June 28, ~23% of the 26 analysts covering TripAdvisor had a bullish recommendation, while 19% had a bearish recommendation. Among the analysts, 58% recommended a “hold.”

Following TripAdvisor’s dismal first-quarter top-line results released on May 8, various research firms were cautious. Barclays (BCS), Stifel Nicolaus, and Wedbush lowered their target prices 8%, 7%, and 10% to $70, $60, and $50, respectively.

Analysts’ average target price has fallen to $52.77 from $56.14 on May 7. The current target price reflects a return of 13.3% over the next year.

TripAdvisor stock has fallen 13.6% in 2019. The stock has underperformed the Amplify Online Retail ETF (IBUY), which has risen 22.3%. IBUY has allocated 26.3% of its funds in the Internet services industry and 3.2% in TripAdvisor stock.

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