Shares of Priceline Group Inc (NASDAQ:PCLN) stock surged about 11% on Wednesday after the company reported better-than-expected quarterly earnings. Investors who didn’t have PCLN stock in their portfolios before the earnings call might be kicking themselves. But don’t fret. There just might be some more upside left as a top analyst predicts Priceline’s stock could surge 38%.
RBC Capital’s Mark Mahaney reiterated his “Outperform” rating and set a price target for PCLN stock of $1,700. That’s a 38% upside from the current price of the stock.
Mahaney has a good track record too on picking stocks. According to TipRanks.com, Mahaney is a top 25 analyst with an average return of 16.3% and a 56% success rate. (Source: “Mark Mahaney,” TipRanks, last accessed February 18, 2016.)
Let’s see how Priceline’s stock might get to $1,700.
The company is still significantly growing. In the most recent quarter, gross profit was $1.9 billion, a 12% increase from the previous year. About 90% of Priceline’s revenue comes from outside of the U.S. If it wasn’t for the strong U.S. dollar, gross profit would have been higher. According to Priceline, on a constant currency basis, gross profit would have increased 23% over the previous year. (Source: “The Priceline Group Reports Financial Results for 4th Quarter and Full-Year 2015,” Priceline Group, February 17, 2016.)
Adjusted net income for the fourth quarter was $641 million, a jump of 11% over the previous year, and for full-year 2015, gross travel bookings increased 10% to 55.5 billion.
The numbers are looking good for Priceline in 2016 as well. For the upcoming first quarter, Priceline expects total gross travel bookings to increase about 12%–19% year-over-year (about 18%–25% on a constant currency basis) and revenue to increase about nine percent to 16%. That kind of growth should be enough to convince investors to take a closer look at Priceline stock.
Going forward, Priceline is making a push into the Chinese market. The company has pumped almost $2.0 billion into Ctrip.com International Ltd. (NASDAQ:CTRP). Priceline accounts for about 15% of Ctrip’s public stock float. (Source: “The Recent Drop In Priceline Stock Creates A Buying Opportunity,” Amigobulls, February 11, 2016.)
Ctrip is China’s largest online travel discount site, accounting for about 50% of the total Chinese market. Revenue in the trailing 12 months are approximately $10.0 billion, almost double the amount from a year ago. (Source: Ibid.)
China’s growing middle class and increasing disposable income has made China one of the largest travel markets in the world. The market is expected to grow in the double digits to reach $75.0 billion by 2017. (Source: “A Majority of the Analysts Have a ‘Buy’ Rating on Priceline,” Yahoo! Finance, February 18, 2016.)
Priceline is also tapping into China on its own. Its largest brand, Booking.com, saw its Chinese properties grow from 8,000 to 25,000 in 2015. The Chinese market should start to contribute significantly to Priceline’s top-line growth.
Speaking of Booking.com, it is Priceline’s biggest advantage over rival Expedia Inc (NASDAQ:EXPE). Booking.com is the world’s largest travel booking site. As such, it accounts for the majority of Priceline’s revenue. In the third quarter of 2015, Booking.com had more than 820,000 bookable properties, growing 38% over the previous year. By comparison, Expedia has only 271,000 bookable properties. Booking.com’s sizeable moat provides a competitive advantage over rivals, as it attracts the most visitors.
The Bottom Line on PCLN Stock
Priceline is still growing significantly, even in the headwinds of a strong U.S. dollar. With its push into China and sizeable moat, investors might want to take a closer look at PCLN stock.