The Ratings Game: Expedia stock heads for best day since 2015 after Diller’s return soothes investors

The Ratings Game: Expedia stock heads for best day since 2015 after Diller’s return soothes investors

14 Feb    Finance News

A mixed earnings report seemed good enough for Expedia Group Inc. investors now that the book has been closed on the company’s old management team.

Expedia Group Inc. EXPE, +11.58%  announced a leadership shake-up late last year, with both the chief executive and chief financial officer exiting the company. During Thursday afternoon’s earnings call, investors got to hear from a familiar voice, Executive Chairman Barry Diller, who is overseeing things at the online-travel giant until a permanent replacement is found.

“While the quarter itself was somewhat disappointing, Chairman Barry Diller’s timing was impeccable, as the prior management team now gets to take the fall for the results,” Benchmark analyst Daniel Kurnos wrote in a note upgrading Expedia’s stock to buy from hold. “Furthermore, given the transition, we expect Expedia will be given a pass for at least the next six months on things like the coronavirus or elevated expense levels, with near-term guidance also set low and a floor under the stock thanks to an aggressive share buyback.”

The stock is the biggest gainer in the S&P 500 SPX, -0.12%  Friday, up 11.9%, after the company delivered better-than-expected earnings but fell a bit short on revenue. Shares are on track to notch their largest single-day percentage gain since July 31, 2015, when they gained 12.9%.

“We believe the bottom-line beat was mostly driven by Chairman Diller’s decision to eliminate wasteful marketing spend (55 basis-point improvement), and streamline operations of the company’s many unique brands,” wrote Jefferies analyst Brent Thill, who has a buy rating on the stock and raised his price target to $155 from $140.

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The general sentiment among analysts was that Expedia isn’t yet out of the woods as it continues to face various headwinds, including changes in search-engine algorithms, losses in its home-sharing unit Vrbo, and now the outbreak of COVID-19, the disease brought on by the novel coronavirus, which is pressuring travel spending.

Coronavirus update: 1,383 deaths, more than 63,000 sickened, Expedia predicts impact beyond Q1

That said, some analysts sounded more confident knowing that there was new direction at the top.

“While Expedia still needs to flesh out plans, its cost savings target, growth indications, and Mr. Diller’s reassuring commentary were all certainly encouraging to us,” Guggenheim’s Jake Fuller wrote. “The rough sketch that we have so far: plans include further rationalization of performance marketing, $300 million to $500 million of cost savings atop that, and what sounds like an internal refocus on core businesses.”

He rates the stock a buy while raising his price target to $160 from $135.

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RBC Capital Markets analyst Mark Mahaney said that he is “somewhat cautious on Expedia arguably operating without a full-time CEO” but that he was also “fully respectful of the almost unparalleled experience Barry Diller has” in the internet sector.

“Yes, we are initially skeptical – and we believe the market will be as well – of Expedia’s ability to deliver double digit Ebitda growth in 2020,” he wrote. “The good news is that this skepticism is arguably priced in… so if Expedia can actually do this, there is upside to shares.”

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Mahaney has an outperform rating on the stock and upped his price target to $143 from $125.

Expedia shares have risen 28% over the past three months, though they’re off 3.4% on a 12-month basis. The S&P 500 has added 8% over three months and 23% over 12.

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