The COVID-19 pandemic battered travel stocks but now that vaccines are being distributed and case counts are trending down, things are beginning to perk up in the sector.
And one analyst says now’s the time to begin thinking about buying online travel agency stocks, with one in particular.
Wedbush analyst James Hardiman boosted his rating on Expedia (NASDAQ: EXPE) shares from Neutral to Outperform this week, and raised his price target on the stock from $130 to $160 – nearly 13% higher than the price as of this writing.
Hardiman noted that a recent Wedbush consumer survey found “pent-up demand for travel,” and in particular, the alternative accommodations offered by both Airbnb (NASDAQ: ABNB) and Expedia’s Vrbo business.
Expedia CEO Peter Kern echoed this in an interview with Bloomberg back in November, where he expressed that the recovery in the travel industry is not just on the horizon, but just around the corner.
Kern argued that with vaccines in distribution, “People will think, ‘Well, by the summer Europe might be open, or I might have the vaccine, so let’s book it.’”
“Travel is a force for good, and we want to help people go where they want to go, how they want to go,” Kern said.
The Expedia CEO isn’t the only one who sees a surge in travel demand incoming.
“We expect long haul travel to start picking up slowly as consumer confidence seems to be rising with the vaccines being rolled out,” said RateGain president Chinmai Sharma. “A recent Harris poll published by the U.S. Travel Association said roughly three-quarters of Americans are postponing travel until a vaccine is available. With that input and the data we have seen, we believe that there will most likely be a rise in bookings as the vaccine continues to roll out.”
Beyond pent-up demand for travel benefiting the stock, Hardiman noted that the valuation of the recent Airbnb IPO would suggest a mismatch in one direction or the other: either Wall Street is over-valuing Airbnb or under-valuing Expedia. Or maybe both.
Airbnb went public in early December at $68 per share, above the anticipated price range of $56 to $60. The stock opened for trading at $146, peaked weeks later at $175, and then ended the year flat at $146.80 giving the company a valuation near $90 billion. Expedia has a valuation of $19 billion.
Currently, Airbnb is valued almost more than Booking.com (NASDAQ: BKNG) and Expedia, combined. Before the pandemic, Hardiman noted that Airbnb had bookings of $38 billion in 2019, while Booking and Expedia together had $204 billion in bookings. Similarly, in 2019, Airbnb had sales of $5 billion, with Expedia and Booking saw sales of $27 billion combined.
Hardiman said his price target for Expedia of $160 was based on an estimate for $3.2 billion of EBITDA (earnings before interest, taxes, depreciation, and amortization) in 2023, net of around $31 a share in net debt. He also forecast revenue of $14.6 billion in 2023, or roughly 5% compounded growth. That’s well short of Expedia’s historical growth rates, making Hardiman’s a conservative forecast.
Further, applying a 50% discount of Airbnb’s current multiple of sales to Expedia’s Vrbo, Hardiman said you get a price for Expedia of almost $200 per share, jumping to $300 a share if you apply the current valuation of Airbnb to Vrbo.
Still, Hardiman doesn’t expect Vrbo to be valued as such. However, he does expect “increased investment in, disclosure of, and emphasis on the various alternative accommodation portfolios at both Expedia and Booking.com.”
Hardiman also noted that if the valuation imbalance between Expedia and Airbnb persists, “there would likely be mounting pressure to spin these businesses off in such a way to force a more favorable sum-of-the-parts valuation.”
Expedia shares are up nearly 12% over the last week, and have gained 248% since its March 2020 bottom.