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Related topics: Expedia, Google, Chesapeake Energy, Kinross Gold, StockScouter

Wall Street applauded when Internet travel agency Expedia (EXPE, news) said on April 7 it would split in two and make its fast-growing TripAdvisor travel site a separate publicly traded company.

While agreeing that the move would be good for shareholders, analysts debated why the Bellevue, Wash., company would slice off a unit that provides search and travel reviews to the 50 million unique monthly visitors to its 18 branded websites. TripAdvisor's revenue grew 38% in 2010, outstripping Expedia's 13%. Expedia had $3.3 billion in sales last year, with TripAdvisor contributing $486 million.

"We continue to think that actions intended to better realize TripAdvisor's value will be constructive for (Expedia) and its shareholders,'' Scott Kessler, an Internet analyst at Standard & Poor's Equity Research, said in a note. Kessler reiterated his "strong buy" rating on the stock.

A stand-alone TripAdvisor could command a market valuation of $4 billion, Deutsche Bank analyst Herman Leung said in a note to clients. Expedia paid $219 million for the business in 2004.

Others speculated that competitive pressures were behind the proposed spinoff. Expedia's stock price has lagged far behind that of rival Priceline.com (PCLN, news). And traffic to TripAdvisor's website is expected to come under attack from Google (GOOG, news), which this month completed its controversial acquisition of ITA Software, a provider of back-end search and booking technology to travel search engines. Critics said the deal gives Google technology that could be used to make it harder for rivals to gain visibility on the Web.

Expedia appears on a daily ranking created with StockScouter, an MSN Money tool that identifies stocks with strong growth prospects in the near term. All stocks with Scouter ratings of 8, 9 or 10 are considered for the list, which is then shortened to exclude stocks with a trading volume below 50,000 shares a day. The remaining stocks are ranked on the basis of market capitalization, sector membership and whether they are growth or value stocks.

The spinoff would leave Expedia with its "transactional brands," including Hotels.com, Hotwire and carrentals.com, which make money from bookings. A stand-alone TripAdvisor would feature more than a dozen websites that provide travel-related information and opinion, supported by advertising. It also receives revenue when visitors click through to other transaction-based websites to make travel arrangements.

Expedia officials said shareholders will receive TripAdvisor shares in a tax-free deal when the spinoff is completed, probably in the third quarter.

TripAdvisor, headquartered in Newton, Mass., was acquired in 2004 by media executive Barry Diller and folded into Expedia, then part of Diller's Internet conglomerate IAC/InterActiveCorp (IACI, news). Diller had bought out Microsoft's majority stake in Expedia three years earlier and installed himself as chairman. Expedia was spun off from IAC in 2005.

Of the 20 analysts covering Expedia, six rate the stock a "strong buy," two have "moderate buy" ratings and 12 have "hold" recommendations.

The stock has a StockScouter rating of 9, meaning it is expected to significantly outperform the market over the next six months with average risk.

 
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StockScouter beats the market

At MSN Money, we think our StockScouter rating system is about as good as it gets when you're trying to decide where to invest. Scouter rates stocks on a scale of 1 to 10. Since it was launched on Aug. 1, 2001, a portfolio of Scouter's top 50 picks has generated a total return that has clobbered the return of the Standard & Poor's 500 Index over the same period.

StockScouter looks for stocks whose business fundamentals, price behavior, valuation and stock-ownership characteristics appear to predict a rising price in the future, based on how those factors have influenced stock prices in the past. The system assigns each stock an expected six-month return and balances that return against the stock's expected volatility.

Consider the above list a starting point for your research.