Based in Norwalk, Connecticut, Booking Holdings (BKNG) is a global leader in providing travel and restaurant reservation services that consumers from over 220 countries can purchase online through different company websites.
Booking Holdings operates through four travel agencies comprising of Booking.com (specialized in lodging reservations), Priceline.com (specialized in discounted rates for airline tickets and hotel stays), Agoda (specialized in hotels, vacation rentals, flights, and airport transfer), and KAYAK.
The company also operates Rentalcars.com, and OpenTable, a U.S. provider of online restaurant-reservation services.
Booking Holdings shares are down 3.5% year-to-date. It is pretty obvious why this stock has sorely lagged the S&P 500, which is up 22% year-to-date.
Due to the need to impose lockdowns and restrictions to limit the spread of COVID-19, sectors such as travel services and HORECA (Hotel/Restaurant/Café) are the ones that have paid the highest price. By not being able to rely on online sales as a temporary buffer solution (as others did), the physical presence of their customers is irreplaceable.
Although the balance sheet is still solid, the current situation regarding the pandemic doesn’t objectively give reasons to look at the near-term future with optimism. Because of this, shares could potentially continue to drop, should they fall below some technical metrics. However, I am neutral on this stock. (See Analysts’ Top Stocks on TipRanks).
Q3 Earnings Results
Thanks to positive trends amid European hotel experiences in the third quarter of 2021, adjusted EPS grew more than 205% year-over-year, on total revenues of nearly $4.7 billion. Also, gross bookings were $23.68 billion. Both total revenues and gross bookings grew by approximately 77% year-over-year.
Outlook
The future still seems too uncertain to be optimistic about the travel sector and HORECA, which remain among those most affected by the pandemic.
The availability of the COVID-19 vaccine is a fundamental aid in the fight against the pandemic. However, there is another threat now that calls into question the effectiveness of the vaccine. This is called the Omicron variant.
How many people will be infected by Omicron? Is this variant more aggressive or less than the previous ones? Will infected people be more or less ill than prior variants? Most importantly, are the current vaccines effective against Omicron? Studies are now underway to give answers.
A study conducted on vaccinated people by the Sheba Medical Center in Tel Aviv has determined that a booster is necessary after five or six months from the second dose. However, its effectiveness against Omicron is four times less effective than the Delta variant.
Therefore, the vaccine needs to be adjusted. According to the European Medicines Agency, it may take three to four months before it is equally effective against the Omicron variant.
Considering this information on the vaccine’s effectiveness against Omicron, there are more shadows than lights for the travel services and HORECA industries, including Booking Holdings.
Mission: Portfolio Expansion
As the recovery continues, the company is pursuing inorganic growth and expanding its services to branded hotels located worldwide.
In particular, Booking Holdings reached two agreements last month to acquire Getaroom, a B2B hotel room distributor, for a total consideration of $1.2 billion, and Etraveli Group, a global flight booking provider, for a total amount of €1.63 billion.
The balance sheet looks strong enough to support these growth initiatives. As of September 30, the balance sheet showed a total of $12.2 billion in cash on hand and $11.5 billion in total debt. The size of this debt is remarkable, but it seems that the company can sustain the burden easily.
Wall Street’s Take
In the past three months, 22 Wall Street analysts have issued a 12-month price target for Booking Holdings. The company has a Moderate Buy consensus rating, based on 12 Buys and 10 Holds assigned.
The average Booking Holdings price target is $2,827.05, implying 31.7% upside potential.
Summary
This company operates a business that is very sensitive to disruptions caused by COVID-19. Since Omicron may lead to new restrictions on flights and holidays, I would stay away from Booking Holdings for now.
Disclosure: At the time of publication, Alberto Abaterusso did not have a position in any of the securities mentioned in this article.
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