Stock Analysis & Ideas

Here’s Expedia Stock’s Bull Case after a Stellar Second Quarter

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Expedia wrapped up a solid quarter backed by robust demand for travel. It expects similar numbers in the upcoming quarter, but its stock price continues to be thwacked by the market.

Shares of online travel business Expedia Group (EXPE) have been buzzing after reporting robust second-quarter results, which handily beat analyst expectations. The company benefitted immensely from a rather busy travel season, where lodging bookings were a company record. Moreover, after the recent market correction, EXPE stock is attractively priced with rock-solid fundamentals. Hence, we are bullish on EXPE stock and its long-term prospects.

Expedia has bounced back exceedingly well from the pandemic-led headwinds and is now pushing forward on healthy travel demand. It presents an excellent proposition for investors looking at reopening plays to add to their portfolios. Although some experts have assigned hold ratings, we feel there is plenty to like about the business as a long-term play.

EXPE Stock Reported Spectacular Earnings Results

Expedia posted stellar operating results for its second quarter on the back of robust travel demand. Several of the top companies in the travel and hospitality space have seen an uptick in demand in recent months. EXPE is no different and notched up an incredible quarter, generating double-digit revenue growth.

Expedia’s adjusted earnings per share of $1.96 came in $0.39 ahead of analyst expectations. Additionally, its strong EPS comfortably reversed the loss of $1.13 in the same period last year. Expedia’s Revenues improved by an impressive 51% from the prior-year period to $3.2 billion, $190 million above estimates. Gross bookings shot up 26% from the prior year to $26.14 billion in the quarter.

Another bright point from the company’s second-quarter results is its balance sheet. Expedia wrapped up the quarter with a whopping $5.6 billion in cash against $6.7 billion in debt. It has paid close to $1 billion in debt since the beginning of the year, and cash flows are likely to be on the higher side through the third quarter.

EXPE’s Management hasn’t provided any financial guidance so far, but it remains highly optimistic for the year. There’s a clear message that demand will remain strong with consumers traveling in massive numbers despite the macroeconomic challenges.

CEO Peter Kerm states, “Currently, we are seeing a robust summer with Q3 lodging bookings pacing ahead of 2019. The same is true for pacing for the remainder of the year, but it’s still early with the majority of bookings for the back half of the year yet to be made”.

Encouraging Outlook Ahead for EXPE Stock

After a blow-out second quarter, investors will be keenly following how the company performs in the upcoming quarter. All evidence suggests that the third quarter will be an encouraging one, with EXPE’s Management commenting on how third quarter bookings are pacing ahead of pre-pandemic levels. Indeed, analysts expect EPS of $4.12 for the third quarter, which is significantly higher than last year’s result.

CEO Ed Bastian of Delta Air Lines, one of the top legacy carriers, feels strong pent-up demand for air travel despite market headwinds. Moreover, he states that satisfying the heightened demand in the space of the summer will be mighty difficult. Therefore, there is a lot more demand to come.

Furthermore, Morgan Stanley’s Travel Survey showed how corporate travel is likely to recover roughly 84% of 2019 levels by the year’s second half.

Also, you have the heartening July U.S. payrolls report, indicating a record low unemployment rate, which effectively brushes aside concerns of deeper economic trouble. Layer that up with the decline in gas prices over the last several weeks, and you have an ideal scenario where EXPE can turn on the afterburners.

Another key element for the company’s success will be platform innovations and B2B initiatives. Its Management focuses on delivering more profitable growth moving forward through stronger unit economics. Nevertheless, 2022 is still a transitional year for EXPE and its peers, with a sense that things will fully normalize by the conclusion of 2023.

Is EXPE Stock a Good Buy?

Turning to Wall Street, EXPE stock maintains a Moderate Buy consensus rating. Out of 21 total analyst ratings, 10 Buys, 11 Holds, and zero Sells were assigned over the past three months. The average EXPE price target is $144.16, implying 27.1% upside potential. Analyst price targets range from a low of $108 per share to a high of $216 per share.

Takeaway – EXPE Stock Likely to Continue Its Business Momentum

There’s plenty to like about Expedia, especially after its second-quarter results. Travel demand is finally back, and the company is already reporting tremendous top and bottom-line results. In all likelihood, the upcoming quarters will continue the momentum it built over the past couple of quarters and help wrap up the year in style.

Of course, there is the risk of further deterioration in the economic backdrop. In that case, the company might feel pressure to maintain its margins. However, despite record high inflation rates, the company has done exceedingly well in dishing out some amazing results.

Therefore, there isn’t a need for analysts to reset their expectations. Looking ahead, it would be imperative for investors to monitor booking levels along with average daily rates. Overall, EXPE is an excellent pick at this time, with it trading at multi-year lows.


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