{"id":68893,"date":"2023-10-05T03:55:07","date_gmt":"2023-10-05T07:55:07","guid":{"rendered":"https:\/\/ifintechworld.com\/markets\/why-booking-shares-could-rise-41-in-a-slowing-travel-market\/"},"modified":"2023-10-05T03:55:10","modified_gmt":"2023-10-05T07:55:10","slug":"why-booking-shares-could-rise-41-in-a-slowing-travel-market","status":"publish","type":"post","link":"https:\/\/ifintechworld.com\/?p=68893","title":{"rendered":"Why Booking Shares Could Rise 41% in a Slowing Travel Market"},"content":{"rendered":"
\n

Travel can be hard, as anyone who has had a flight canceled recently can tell you.
\n Booking Holdings
\n makes investing in travel easy. <\/p>\n

Yes, Booking Holdings (ticker: BKNG). Shares of the travel website have been the closest thing to a sure thing in the travel universe, outperforming airline stocks, hotels, and Expedia (EXPE) in recent years. Over the past three years, the stock has doubled the return of the S&P 500, with those gains having been driven by strength in the overall travel market and Booking\u2019s ability to turn that into profits. Travel is getting trickier after the post-Covid boom, but Booking\u2019s strengths, particularly in Europe, give it an advantage that should mean continued outperformance in the years ahead.<\/p>\n

\n

\u201cBooking is more exposed to a structurally better market in Europe,\u201d says Ramiz Chelat, a portfolio manager at
\n Vontobel Asset Management,<\/span>
\n which owns the stock. \u201cWe tend to go for industry leaders with cleaner track records, and Booking stands out.\u201d <\/p>\n

Booking isn\u2019t a little-known destination for investors. The stock has gained 50% in 2023, to a recent $3,040, driven by total bookings, which rose 15% to $39.7 billion in the second quarter. It\u2019s fair to wonder if all the gains are already in the stock, particularly amid signs that travel could start to slow. <\/p>\n

<\/p>\n

<\/p>\n

\n
\n\n\n\n\n\n\n\n\n
Key Data<\/th>\n <\/th>\n<\/thead>\n
Recent Price<\/b><\/td>\n$3,014.48<\/td>\n<\/tr>\n
YTD Change<\/b><\/td>\n51%<\/td>\n<\/tr>\n
Market Value<\/b><\/td>\n$107 billion<\/td>\n<\/tr>\n
2024E P\/E<\/b><\/td>\n17.8<\/td>\n<\/tr>\n
Base Dividend Yield<\/b><\/td>\nN\/A<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

E=estimate<\/p>\n

Source: Bloomberg<\/p>\n<\/div><\/div>\n<\/p><\/div>\n

Booking, though, is more than just a simple play on the travel market. The advantage it gets from Europe is what sets it apart from Expedia and other travel sites. U.S. hotels are largely chain-operated, and travelers are often better off booking through
\n Hilton Wordwide Holdings
\n (HLT),
\n Hyatt Hotels
\n (H),
\n Marriott International
\n (MAR), or others directly than through the travel aggregators. <\/p>\n

That\u2019s not the case in Europe, where Booking has the largest market share in a very fragmented business, according to Mordor Intelligence. Many hotels there are independently operated and have little choice but to use Booking. They also have higher margins\u2014D.A. Davidson analyst Tom White estimates that Booking earns 15% commission on hotels\u2014than air travel, where it earns low- to mid-single-digit rates. That mix helps make Booking more profitable than its peers. <\/p>\n

Geography will help, too. While U.S. travel is slowing, Asia has particularly high growth. That\u2019s largely because of China, where travel is still only 60% of what it was before Covid, something Melius Research\u2019s Conor Cunningham calls \u201ca further catalyst for performance\u201d as it continues to recover. \u201c[We] expect the stock to continue to work, as the company has [outsize] exposure to international markets, where recovery is still in the middle innings,\u201d he writes.<\/p>\n

Despite its success, Booking isn\u2019t getting complacent. It\u2019s betting on what it calls \u201cconnected travel,\u201d providing everything from the flight and the hotel to the car that gets travelers to and from the airport. It\u2019s also using artificial intelligence to make it easier for customers to find what they want. In the long term, these efforts will boost company profits by keeping consumers coming to what is increasingly an all-in-one website. <\/p>\n

\u201cYou\u2019re adding a new revenue stream that\u2019s adding profit dollars,\u201d says Cowen analyst Kevin Kopelman. \u201cMore importantly, it\u2019s supporting your overall package so it\u2019s going to help drive hotel growth due to cross-selling and packages.\u201d <\/p>\n

The proof is in the financial results. Analysts forecast sales to grow at about 9.5% annually over the next three years to about $27.7 billion in 2026, according to FactSet, slightly slower than total bookings growth. Despite that, analysts expect operating margin to rise to just over 32% in 2026 from 30.9% this year, as sales growth outpaces increases in expenses such as marketing and salaries. Even without much operating margin expansion\u2014increasing the amount it pays Google to drive traffic to its site is one possible headwind\u2014net income should grow at roughly 13% annually. <\/p>\n

The real driver of the stock, however, will be its free cash flow, which should top $7 billion next year. That would be roughly equal to earnings before interest, tax, and noncash expenses, because the company is keeping its capital expenditures low. And much of that cash will go to buying back stock\u2014the company signaled on its second-quarter earnings call that it still has $19 billion authorized to buy back shares, which it plans to use over the next 3.5 years. <\/p>\n

Buybacks have been a big part of Booking\u2019s strategy\u2014this year, it has reduced its share count from 37.9 million to 35.7 million through the end of July\u2014and Evercore analyst Mark Mahaney says the company should be able to achieve high-teens earnings-per-share growth because of coming repurchases. Nor does the stock, at about 18 times 2024 earnings estimates of $169, look all that expensive. It\u2019s roughly equal to the S&P 500\u2019s valuation, yet Booking grows earnings at almost twice the rate of the index.<\/p>\n

\u201cI like the stock because I think it\u2019s got good earnings growth,\u201d says Mahaney, who has a $4,300 price target, up 41% from Wednesday\u2019s close. <\/p>\n

That\u2019s a trip we look forward to taking.<\/p>\n

Write to <\/strong>Jacob Sonenshine at jacob.sonenshine@barrons.com<\/p>\n<\/p><\/div>\n<\/div>\n

Read the full article here<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

Travel can be hard, as anyone who has had a flight canceled recently can tell you. Booking Holdings makes investing in travel easy. Yes, Booking Holdings (ticker: BKNG). Shares of the travel website have been the closest thing to a sure thing in the travel universe, outperforming airline stocks, hotels, and Expedia (EXPE) in recent […]<\/p>\n","protected":false},"author":1,"featured_media":68894,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"gallery","meta":{"footnotes":""},"categories":[241],"tags":[83],"class_list":["post-68893","post","type-post","status-publish","format-gallery","has-post-thumbnail","hentry","category-markets","tag-featured","post_format-post-format-gallery"],"yoast_head":"\nWhy Booking Shares Could Rise 41% in a Slowing Travel Market | iFintechWorld<\/title>\n<meta name=\"description\" content=\"Travel can be hard, as anyone who has had a flight canceled recently can tell you. Booking Holdings makes investing in travel easy. 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