Priceline Has Very Little Priced In, So Barclays Upgrades To Overweight

With Priceline Group Inc (NASDAQ: PCLN) shares appearing to price in a bearish scenario, Barclays’ Christopher D. Merwin believes near-term concerns offer an attractive buying opportunity.

Merwin upgraded the rating on the company from Equal Weight to Overweight, while raising the price target from $1,300 to $1,500.

Long-Term Story Unchanged

“Despite our expectation for long-term structural growth in a compelling end market and a strong historical track record of execution, we believe PCLN shares are pricing in a fairly bearish scenario of falling take rates and margin de-leverage, only amplified by a disappointing 2Q guide,” the analyst mentioned.

Related Link: Historically, Priceline's Guidance Doesn't Align With Reality

However, Merwin pointed out that the reasons management cited for the lower-than-anticipated 2Q guidance were largely timing-related and did not impact the long-term story.

The analyst believes take rates have been stabilizing, with Priceline’s shift to the agency model being almost complete, while margins are expected to improve as the company begins to shift its ad spend to higher ROI channels.

Near-Term Concerns

“At 1Q, PCLN called out sporting events and the Ramadan holiday as a potential headwind to summer travel, though we believe these events could actually push demand into late 2Q and 3Q, a neutral impact to the year,” Merwin stated.

In addition, with FX headwinds waning and ADRs recovering, especially in Europe, the analyst expects accelerated top line growth in 2H.

The EPS estimates for CY16 and CY17 have been raised from $66.60 to $67.88 and from $80.16 to $80.55, respectively.