Although Priceline.com's profits and revenue rose in Q2, the company expects to take a hit on European bookings impacted by the recession and increased competition with Expedia for U.S. business.
Shares of Priceline.com Inc. may be “dead money” in the near term, a Citi analyst on Wednesday, but he urged investors to pick up more shares in preparation for a recovery.
The Norwalk, Conn., discount travel website operator’s stock tumbled 15 percent in electronic trading before the opening bell Wednesday. The company warned late Tuesday that the weakening European economy was weighing on results in the current quarter, and its predictions for profit and revenue fell short of Wall Street forecasts.
Much of Priceline’s business is based on European travel.
Investors reacted so negatively to the results for several reasons, said Citi’s Mark Mahaney in a note to clients. Priceline missed its high-end international bookings expectations for the first time in more than three years, its third-quarter expectations imply recession-level booking trends overseas and its domestic bookings fell under those of competitor Expedia Inc. for the second consecutive quarter.
Mahaney trimmed his earnings estimates for the year and cut his price target on the stock by 13 percent. But said he still thinks the shares a good value at their current level. At his new price target of $740, he’s predicting a stock-market gain of nearly 9 percent from Tuesday’s close of $679.80.
The analyst now believes Priceline will earn $30.19 per share in 2012, compared with an earlier estimate of $31.95. Analysts, on average, expect $31.02, according to FactSet. He also cut his earnings forecasts for the company through 2014.
Still, Mahaney said he remains upbeat about Priceline’s long-term potential and kept his “Buy” rating on the stock. Growth in Asian and Latin America, new rental car offerings and U.S. hotel market share gains will drive the shares despite the slowdown in Europe, he said.
Shares dropped $101.05, or 15 percent, to $578.75 in premarket trading Wednesday. The stock has gained 45 percent this year.
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