TripAdvisor (TRIP) rose ~2% on June 19 after SunTrust turned bullish on the stock. SunTrust analyst Naved Khan upgraded his rating on the vacation booking company to “buy” from “hold,” citing a robust revenue growth projection for its Experiences segment over the next several years.
The analyst stated that the Experiences division now accounts for 30% of the company’s total revenues but is still not reflected in the stock’s valuation. Khan believes that the segment has the potential to increase 3.5 times in the next five years.
In a note to clients, Khan wrote, “Our Buy thesis centers on our calculations that TRIP’s rapidly (+30% annual growth) expanding Experiences segment now represents nearly a third of sales and a solid majority of the stock’s intrinsic value, while the multiple on EBITDA appears to us to place far more emphasis on the slow-growing Core,” CNBC reported. He further added, “Experiences has now reached critical mass, which coupled with stabilization in Core should help drive accelerating growth in overall top line in FY20/beyond, in our view.”
The analyst has maintained his $60 price target on the stock, which signifies a 27% upside potential over the next year from the June 19 closing price of $47.19. Khan’s target price on the online travel agency is also 13.7% higher than the Wall Street analysts’ average target price of $52.76.
Analysts have a mixed view on TripAdvisor stock. The stock has a consensus “hold” recommendation from analysts polled by Reuters. As of June 19, 20% of the 25 analysts covering TripAdvisor stock have provided bullish recommendations, 60% of them recommend holding it, and the remaining 20% have a bearish opinion.
Further, various analysts, including Barclay (BCS), Wedbush, and Stifel Nicolaus have cut their target price on TripAdvisor after its dismal first-quarter top-line performance on May 8. On May 9, Barclays trimmed its target price by $8 to $70, Wedbush lowered it to $50 from $60, and Stifel Nicolaus cut it by $7 to $50.
Analysts’ average target price has fallen to $52.76 from $56.14 on May 7. The current target price reflects a return of 11.8% over the next year. On the other hand, analysts have maintained a “buy” recommendation for TripAdvisor’s peers Expedia (EXPE) and Booking Holdings (BKNG). Their one-year- target prices signify an upside potential of 15% and 9.3%, respectively.
To gain exposure to the online travel agency industry, one can invest in the Amplify Online Retail ETF (IBUY). The ETF has gained 23.7% in the year so far, outperforming the returns of the Dow Jones and the S&P 500, which are up 13.6% and 16.7%, respectively.