$PCLN Q1 Earnings Preview

by Dan May 9, 2013 11:50 am • Commentary

Event:  PCLN report their Q1 earnings TONIGHT after the close.  The options market is implying about a 6.1%* (last quarter the implied move was a~7.25% and the stock move was only ~1.5%). The 4qtr  average has been ~8.3% and the 8 qtr avg of ~7.6%. (*with the stock about $735 the May10th weekly 735 straddle is offered at about $45, if your bought that you would need a $45 move either way to make money, or about 6.1%.)

Sentiment: Wall Street analysts remain fairly positive on the stock with 23 Buys, 7 Holds and no Sell ratings with an average 12 month price target of $822, up from $753 when they reported their Q4 in February.  Short interest sits at about 5.5% of the float, which is essentially inline with where it has been for months.

Option Volume / Open Interest:  Over the last 20 days, options volume has been slightly skewed towards calls with the avg volume of ~11k calls vs 9k puts a day, while total open interest is nearly split btwn 54k puts and 53k calls.

The largest lines for open interest are the 1400 of the May 690 puts, 1300 of the May 630 Puts, 1100 of the May 770 calls, and 1100 of the May 700 puts.  

Vol Snapshot:  Implied vol is ramping into the event but is not astronomical on a historical basis. May is around 53 vol and June 31. IV will come into the mid to low 20s following the results.

[caption id="attachment_25697" align="aligncenter" width="646"]Screen Shot 2013-05-09 at 9.20.26 AM from LiveVol Pro[/caption]

Price Action / Technicals:  Not much has changed for PCLN technically since its last earnings report (when it was trading around $700).  The same important support and resistance levels are present on the 2 year chart:

[caption id="attachment_25694" align="alignnone" width="634"]2 year daily chart of PCLN, Courtesy of Bloomberg 2 year daily chart of PCLN, Courtesy of Bloomberg[/caption]

$675 has acted as support several times so far in 2013.  On the upside, the all-time high around $775 is the obvious level to watch.  Given that the stock is pricing in a $44 move in either direction, those levels could easily come into play on a big move higher or lower after the report.

Valuation / Fundamentals:  There were few large cap U.S. companies that are expected to grow earnings and sales at 24% in 2013 that trade at ~19x that expected growth.  While PCLN is in the midst of growth deceleration, analysts still expect a solid high teens earnings and mid teens sales growth for the next few years.   There are very large cap tech stocks that trade at a PEG (PE/Growth) of less tan 1.

JPM who rates the shares a Buy with a 12 month $835 price target had the following to say about the quarter in a note to clients dated May 6th:

We expect strong 1Q results with upside to our estimate for International FX-neutral bookings growth of 41%, which is toward the high end of guidance of 35% to 42%. Despite concerns of weak macro trends in Europe, we believe commentary from Expedia suggests travel trends in the region appear to be relatively stable. Increasing competitive dynamics and shifts in traffic sourcing are likely to increase sales and marketing expenses, but we believe this is understood by the Street, and we are optimistic that Priceline can drive higher bookings growth that offsets margin pressures.

What we’re looking for: 1) Strong FX-neutral international bookings growth possibly in the mid 40%s and a 2Q guide in line with or slightly above 1Q’s; 2) update on international travel trends and macro, particularly in Europe; 3) an update on Booking.com performance in the U.S. market and the progress of its offline advertising campaign; 4) an update on Kayak, and Priceline in the Kayak bookings path; 5) an update on margin trends into 2H13; and 6) potential pressure from tight rental car market in the U.S. offset by opaque share gains.

My View:   Given the way stocks are moving on earnings this week (RAX down 26%, TSLA up 22%, GMCR up 24%, GRPN up 10%, MNST down 7%, FIO down 18%, AOL -9%, Z -10%, WFM up 10% & EA up 17%, to name a few in the last 24 hours) PCLN’s implied move looks pretty fair at ~6% given the data points that have already been digested by competitors and other consumer related names.

The set up heading into the print tonight is not an easy one by any means given the stocks nearly 9% rally since it touched its 100 day moving average for the first time since Dec, back on March 22nd.  That being said, stocks with good results and outlook, and the least bit of short interest are seeing higher highs on a fairly consistent basis.

We will post on any trades that look attractive against stock positions and/or from a directional or vol basis.  stay tuned.