Top Analyst Winds Down Price Target on Priceline Group Inc (PCLN), But Robust Long-Term Prospects Remain

While Priceline's long-term looks good, short-term faces shake-up.


Priceline Group Inc (NASDAQ:PCLN) shares are nearly taking a 13% dive even after the online travel giant trotted out a third quarter outclass. What happened that spooked Priceline investors scared straight today despite such a strong earnings showing? The culprit points to the giant’s troublesome fourth quarter guide that came up short of Street-wide expectations.

Top analyst Michael Olson at Piper Jaffray believes “aggressive investments” paired with Priceline’s “ongoing change in customer acquisition strategy” proved to be a drag on the guide, leading to a transition that the analyst says will not be a “quick one,” likely lasting “well into 2018.”

In reaction to the mixed print, the analyst reiterates an Overweight rating on PCLN stock while clipping the price target from $2,150 to $2,000, which implies a 20% upside from current levels.

Though the analyst has dialed his expectations, he believes his revised target is achievable “given long-term secular drivers of offline-to-online travel bookings internationally, where Priceline is dominant,” but adds on a less positive note: “In the near-term, however, we no longer believe a premium multiple to the historical average is justifiable.”

For the third quarter, Priceline soared in earnings of $21.76 billion, beating out expectations of $21.45 billion, with EPS of $35.22 trouncing the Street’s $34.26. Room night growth likewise topped consensus of 17% with 19% for the quarter.

Overall, “As is typical for Priceline, management guided Q4’17 EPS (at the mid-point) below consensus (by 12%); the company has beaten the mid-point of company EPS guidance by an average of 10% over the past 15 quarters. Like its closest competitor, Expedia, Priceline has entered a period of increased spend, combined with a shift in customer acquisition strategy (towards more direct traffic flow). We believe Priceline is implementing prudent changes for the long-term trajectory of the business,” surmises the analyst who has likewise cut his bookings gains and operating margin assumptions for next year. All the same, even with challenges lying ahead, Olson continues to bet on the giant: “a strong long-term opportunity remains in PCLN shares.”

Michael Olson has a very good TipRanks score with a 65% success rate and a high ranking of #84 out of 4,703 analysts. Olson realizes 18.4% in his yearly returns. When recommending PCLN, Olson earns 21.2% in average profits on the stock.

A lot of bulls are gritting their teeth as shares crash today, considering TipRanks analytics exhibit PCLN as a Strong Buy. Based on 17 analysts polled by TipRanks in the last 3 months, 14 rate a Buy on Priceline stock while 3 maintain a Hold. The 12-month average price target stands at $2,033.00, marking a 21% upside from where the stock is currently trading.