We are raising our rating on Booking Holdings Inc. (BKNG), formerly Priceline Group, to buy from hold; the company changed its name from Priceline Group on February 21, 2018, explains John Staszak, analyst with Argus Research.

Booking Holdings Group offers a variety of online booking services, including airline tickets, car rentals, cruises, hotel rooms and vacations. The company’s Booking.com, Agoda (international) and Booking Holdings.com (U.S.) brands enable customers to reserve hotel rooms anywhere in the world.

Booking Holdings is well known in the U.S. for its Name Your Own Price system; however, more than 80% of bookings are international (primarily in Europe).

In August 2014, Booking Holdings increased its investment in Ctrip, China’s largest online travel agency.  In July 2014, Booking Holdings paid $2.6 billion in cash to acquire OpenTable, which provides restaurant reservations online in the U.S. and internationally.

In May 2013, it paid $2.1 billion in stock and cash to acquire KAYAK Software Corp. KAYAK searches travel sites to obtain the lowest hotel room and airline ticket prices.  In 2012, the company paid $109 million for TravelJigsaw, a provider of rental car services in Europe. In 2007, it acquired Agoda, an online travel company offering hotel bookings in Asia, for $158 million.

We think that management’s efforts to expand its services and diversify geographically have enabled the company to gain market share over the past five years. Although some of its competitors entered Europe before Booking Holdings, savvy acquisitions have, in our opinion, enabled the company to become a leader in the European market.

On February 27, Booking Holdings reported fourth-quarter revenue of $2.8 billion, above the consensus estimate of $2.7 billion, and adjusted EPS of $16.86, up from $14.21 a year earlier and above the consensus of $14.13.

Bookings rose 19% to $18.0 billion (up 14% in constant currency) and topped the consensus forecast of $17.4 billion. In 2017, revenue increased 18% to $12.7 billion and adjusted earnings totaled $77.03 per share, up from $65.63 in the prior year.


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We expect revenue to increase nearly 12% in 2018, to $14.2 billion. Despite currency headwinds, we expect Booking Holdings to benefit from higher volume and moderate price increases, and look for improving economic conditions and effective marketing to boost usage in Europe.

Reflecting a strong 4Q17, offset in part by higher advertising spending, we are raising our 2018 EPS estimate from $85.00 to $87.00 and setting an estimate of $100.00 for 2019. Both estimates are above consensus.

We are setting a price target of $2,520. We believe that BKNG’s current valuation inadequately reflects growth in the company’s core online travel agent (OTA) business and strong market share. The company’s Booking.com brand has the opportunity to expand in Asia, Latin America and North America, while continuing to grow in Europe, where it is a market leader.

The company also has the ability to grow its alternative accommodations business, which includes bed-and-breakfasts and home rentals. Over the long term, we believe that continued investments in marketing and advertising will enable Booking Holdings to maintain its position as the leading online travel agency.

 We believe that BKNG shares are undervalued at current prices near $2,100. The shares are trading at 24.1-times our revised 2018 EPS estimate, near the high end of the five-year historical range of 8-28.

We believe that the current valuation inadequately reflects the company’s strong market share and prospects for global growth. At current prices, our target price of $2,520 offers  investors the prospect of a 20% return. As such, our long-term rating remains buy.

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