Friday, December 19, 2008 (PCLN) - Back on my Radar

TweetThis (PCLN) is starting to perk my interest again - as the chart has improved substantially and we might be close to a breakout situation. I also like some of the fundamental story here but charts are all that matter in the current environment so we'll focus on that. As we have been saying often of late, we want to see stocks acting well on the charts during this moment of peace between bulls and bears; those that are acting well now should be foreshadowing better things ahead in a more secular long term uptrend. My favorite group remains healthcare (many of those stocks are above all their moving averages) but we want some balance outside of that group and could be a candidate. Here is why:

After a fake "breakout" Turkey week, the stock formed a double top with its mid October high of $70. So we had a textbook failure (you never know in advance, in late November you could of been facing a double top or on the cusp of a new move higher). But in retrospect you see the breakdown and the stock fell below its 50 day moving average. Now a month later we are back to the same level; the stock is back above its 50 day moving average as of earlier this week and we "appear" to be peaking our head over this double top level. Still too early to tell so we'd want to see a confirmation (for me, maybe a print of $72+ as a closing price) So we're watching...

Outside of technicals, there are some positive factors - 60% of business is in Europe and the resurgent Euro (we'll see if that lasts) should be a net benefit. Remember, the super strong Euro sent a flood of French, German, Spanish et al into the US for shopping trips through 2007 and 1st half 2008. An analyst commented on this yesterday
  • The activity followed the release of Susquehanna research that says a rising euro will strongly benefit Priceline, which derives nearly 60 percent of its bookings from Europe. The euro has rallied more than 15 percent against the dollar since mid-November.
Jon Najarian (i.e. the brother who doesn't scream on TV) from OptionMonster indicates
  • Traders are bullish on Priceline Thursday, buying calls in enormous volume after a positive report from Susquehanna Bank. On the options front, PCLN volume exceeded 30 times its 30-day average in the first 90 minutes of trading alone.
  • About 38,300 calls are trading against just 16,000 puts, according to OptionMonster's proprietary tracking systems. Much of the activity involves the January 75 and January 80 calls.
Now in my bigger picture thesis, I've said many times I believe Americans are narcissistic in this belief that "the U.S. shall lead them" - into the recovery. Despite being the nexis of all the world's credit problems, exporting our toxic debt to the entire globe, and having the most underwater and debt laden consumers - we somehow are going to lead the world "out of this". Instead of emerging markets, or heck even Europe. Outside of Spain and the UK who have epic housing bubbles (why? because their banks followed the US into the same policies) - countries like France and Germany have just "the recession" to deal with, but at least a consumer with nowhere near the debt load of Americans. Plus their jobs have a lot more protections so the threat of job loss is not hanging over their head every single waking moment. But all I hear on CNBC is how the US is superior and "the Europeans are SO BEHIND." It's funny how when you wake up at night and listen to CNBC Europe you don't quite here the same story. But I digress... just let it be known that it's no "slam dunk" that the superior US shall lead the world out of it... I disagree but I'm the outlier.

So back to, in the U.S. a thesis could be built that while Americans are poorer that is akin to a Walmart (WMT) type of service. And in Europe, well I explained why, all things being equal, I have a lot more faith in the European consumer over the next few years, than the American (ex top 2% of income bracket)

Hence in theory, one could built a fundamental case, although in hedge fund driven world, fundamentals mean nothing and charts are everything. Last we looked at the name in August [Aug 6: - Down 17% on Good Earnings?] the stock had just dropped from $120 to below $100 on "good earnings" as we were beginning to price in the coming bad news - ala Sept, Oct, November 2008. The stock actually fell another 50% even from that point! But has now rebounded smartly as shown above - yet still $30 below early August. The company is going to make just under $6 this year, and probably the same next year so growth is stalled as this is relatively economic sensitive but the stock is pretty darn cheap at just over 11x earnings. While next year estimates are showing little growth the company has a history of under promising and over delivering so there is a chance that 3-4% growth could be 10% growth even in a horrid global economy.

In their most recent earnings period, which they reported in early November, they did very well
  • Late Thursday, the Norwalk, Conn.-based company posted third-quarter earnings of $88 million, or $1.81 per share, down 16 percent from a year-ago period helped by a tax benefit. Excluding one-time costs, the company would have earned $2.39 per share. Analysts polled by Thomson Reuters expected income of $2.10 per share.
  • Revenue rose nearly 35 percent to $561.6 million.
  • For the third quarter, gross bookings, the dollar value of all travel services bought in the quarter, rose 47.4% from the year-ago quarter to $2 billion. International gross travel bookings rose 58.6% to $1.25 billion. U.S. gross bookings rose 32.8% to $799.6 million.
  • For the fourth quarter, forecast adjusted profit of $1 to $1.10 per share -- below analysts' average forecast of $1.16 per share.
  • Stifel Nicolaus analyst George Askew wrote that while the company is well run and well positioned to benefit from European consumers turning to online booking, it will be hurt by the appreciation of the dollar compared with the euro, falling demand for leisure travel and increasing cancellation rates.
  • Goldman Sachs analyst Mitchell Connolly also kept a "Hold" rating, but said there was a case for buying the stock because the price already reflects the economic downturn. Furthermore, the company is taking market share and will continue to do so, he wrote.
The company is not wart-less and not economically immune; but all things being equal much superior to a lot of peers and most of the junk the hedge funds are running into on the "2nd half recovery 2009" thesis. Even if growth drops from its current 30,40%ish to 15%ish (cut by more than half) this would far exceed current expectations and the stock would provide a nice value. Unfortunately the hedge funds had high ownership of this name, which in the past 6 months we've seen means stocks that are simply obliterated as hedge funds implode.
  • "Priceline's a stock that's been completely taken apart in the last three months," said Standard & Poor's equity analyst Scott Kessler. "It was also one of the companies with the highest percentage of hedge-fund ownership at the end of the second quarter. I'd think that (selling by hedge funds) would have had an adverse impact on the company's shares over the last couple of months." He rates the stock a hold.
Once more, I expect a lot of retrenchment in 2009 by consumers (worldwide) - travel is something that can easily be curtailed. But as hedge funds try to front run the coming economic bliss of "2nd half 2009" instead of buying some soon to be bankrupt retailer, I'd rather own companies with solid management, a history of surprising the Street on the positive side, and William Shatner on its side. Apparently some institutions are also thinking the same way with the option buying. But for now, I want to see the chart confirm a true breakout so we don't suffer the same fate those who bought near Turkey Day did.

No position but watching

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