Expedia travels first class

The soaring stock isn't as good a deal as it was, but it's good enough if you're not distracted by the GDP.

By MoneyShow.com May 1, 2012 10:30AM

By Igor Greenwald, MoneyShow.com


GDP, SchmeeDP. Investors had a cursory glance at the U.S. economy's mildly disappointing 2.2% growth rate in the first quarter, then hurried on to more pressing business. That would be the business of deciding how much to pay up for earnings that have broadly exceeded expectations.


Three-quarters of the S&P 500 companies reporting so far have posted positive surprises, and more impressively still they were, as of last week, on pace for year-over-year earnings growth just shy of 10%, well ahead of the 2% consensus forecast.


As discussed here a week ago, the global economy of the multinationals overlaps only coincidentally with the national accounts measured by GDP reports.


And if Honeywell (HON), Microsoft (MSFT) and Apple (AAPL) haven't driven that point home yet, here comes Expedia (EXPE), the latest port of call for belated buyers. (Microsoft owns and publishes Top Stocks, an MSN Money site.)


The online travel marketer's stock has been up as much as 30% to an all-time high after it reported last week adjusted earnings of 26 cents a share, vs. the consensus estimate of 15 cents a share. Revenue rose 12% in a year's time, also beating expectations. Plumping the growth was the 24% surge in the number of hotel nights booked through the various corporate sites, notably through Hotels.com and Hotwire.


I'm kicking myself here, because I haven't given Expedia much thought since recommending it in January of last year, when it could have been had 38% cheaper. I returned to Expedia's inexpensive earnings multiple in December, after singing the praises of its TripAdvisor (TRIP) spinoff, but didn't buy then either.


Another chance came and went last week, after what should have been the dead giveaway of very strong results from Starwood Hotels (HOT), the operator of Westin, Sheraton, and other major brands. And it wasn't just the strong results or the stock's 4.4% pop to a new ten-month high, but this quote from the CEO: "Seemingly unstoppable demographic and economic trends are fueling global growth in demand for high-end travel."


The people who can afford to travel are really getting out there, and what's good for Starwood and Wyndham (WYN) is great for Expedia, Priceline.com (PCLN), or TripAdvisor, for that matter.

It's not too late to get in, no matter how daunting the big jump in Expedia's shares might make it. It's not just that studies, old and new, have shown that stocks jumping on earnings surprises tend to outperform the market from there.

It's also the fact that even after its big jump, Expedia sells for less than nine times its trailing EBITDA (earnings before interest, taxes, depreciation and amortization), while growing at a double-digit rate. And that measure of cash earnings was up 23% year-over-year in the latest quarter.


All this implies a cash earnings yield of at least 10%, at a time when the ten-year Treasury note yields less than 2%. That makes Expedia a steal even after Friday's takeoff. And that's also why the GDP data earned a shrug.



Copyright © 2014 Microsoft. All rights reserved.

Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.


StockScouter rates stocks from 1 to 10, with 10 being the best, using a system of advanced mathematics to determine a stock's expected risk and return. Ratings are displayed on a bell curve, meaning there will be fewer ratings of 1 and 10 and far more of 4 through 7.

123 rated 1
262 rated 2
480 rated 3
651 rated 4
649 rated 5
629 rated 6
616 rated 7
496 rated 8
346 rated 9
111 rated 10

Top Picks

TAT&T Inc9



Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.

Contributors include professional investors and journalists affiliated with MSN Money.

Follow us on Twitter @topstocksmsn.