As we expected, Priceline.com (PCLN) easily beat consensus estimates for the second quarter and raised its guidance for the second half of 2008. Even so PCLN shares sold off by more than 20% on the news. We expect the company to 'beat and guide higher' for the next few quarters.
The market was spooked by slightly lower-than-expected growth in its International business segment. Specifically, the company's International bookings increased 80% y-o-y versus its guidance of 80%-90% growth. We believe that growth in its International business remains strong and the company's cost controls continue to produce impressive operating leverage.
Priceline's diversified product offerings and international expansion provide the company substantial opportunities for growth. The company is well positioned to weather a slowdown in consumer discretionary spending because of the value proposition it offers customers and travel suppliers. We view the sell-off as a buying opportunity. We reiterate our Buy rating. Our target price is $129 or 18x our 2009 EPS estimate.
The shares of Priceline.com trade at 20.3x our 2008 EPS estimate and 16.4x our 2009 EPS estimate. We think this valuation is attractive, given the company's track record of strong revenue growth, impressive operating leverage and EPS upside surprises. Our target price is $129, or 18x our 2009 EPS estimate. That multiple is a slight discount to our estimate of the company's earnings growth over the next five years.
Read the full analyst report on PCLN
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