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Why SunTrust Turned Bullish on TripAdvisor Stock

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Jun. 20 2019, Published 7:32 a.m. ET

Rating upgrade

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.

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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.

Consensus recommendation

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.

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