Expedia (EXPE)/Priceline (PCLN) Pair Trade - Needham

Needham & Company analyst, Laura Martin, reiterated her Buy rating on shares of both Expedia (NASDAQ: EXPE) and Priceline (NASDAQ: PCLN) but noted that valuations have converged to the point where both are trading at about 22x 2018E EPS, despite PCLN having 2x higher FCF yield and converting 3x more EBITDA into FCF.

The analyst believes there is more downwards earnings risk for EXPE over the near term (i.e., June and September quarters), which is OTA’s busy season, representing about 65% of annual EBITDA. Specifically, we believe the market is underestimating the negative global publicity tied to the February 2017 US travel ban, even though US courts have stymied implementation.

Further, EXPE’s loss is PCLN’s gain because fewer travelers to the US from offshore helps PCLN because OTAs are a duopoly, with the US dominated by EXPE and offshore dominated by PCLN.

For an analyst ratings summary and ratings history on Expedia click here. For more ratings news on Expedia click here.

Shares of Expedia closed at $147.69 yesterday.

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