Down 23% In Last Month, Booking Holdings Stock Poised For Gains?

After a 23% fall over the last month, at the current price of around $2100 per share, we believe Booking Holdings stock (NASDAQ: BKNG) could see a rebound. BKNG stock has declined from $2635 to $2100 in the last month, underperforming the broader indices, with the S&P falling 5% over the same period. Booking Holdings derives a majority of its revenue from the European market, which has undertaken a series of economic measures in response to Russia’s invasion of Ukraine. To add to that, a decline in travelers from Russia, who are currently under a ban, could also have a modest impact on BKNG’s business. So, travel restrictions and economic risks seem to be the large factors driving the stock lower right now. However, we believe that this could be a buying opportunity given the momentum happening in the company’s business. BKNG’s ongoing investment in alternate accommodation, payments, flights, and merchandising should help it gain a share of the broader travel market in the long term. In addition, the company’s structurally higher profitability, as compared to the pre-pandemic levels, looks like a win for the company.

BKNG recently reported its Q4 report, wherein revenues and earnings both were above our estimates. The company surpassed consensus expectations on the top and bottom lines in its Q4 earnings with reported revenues of $3 billion, up 140% year-over-year (y-o-y), and adjusted EPS of $15.83, compared to a loss of 57 cents in the year-ago quarter. By the looks of things, travel is recovering well from the pandemic-driven restrictions in 2020. It should be noted that the fourth-quarter revenue was still about 10% lower than the $3.3 billion the company reported in the same quarter two years ago. That said, the y-o-y recovery in revenue translated to much better profitability, with net income climbing back to $618 million compared to the year-ago loss of $165 million. In addition, Booking Holdings’ gross bookings were 160% higher in Q4, driven by strong demand in both agency and merchant channels. To add to this, the company’s room nights were higher by 100% y-o-y, rental car days grew 36% y-o-y, and airline tickets were up 108%. Despite the negative impact on travel from the Omicron wave at the end of the fourth quarter, adjusted EBITDA was better than expected and came in at $940 million compared to $38 million a year ago.

We have updated our model following the Q4 release. We forecast Booking Holdings’ Revenue to be $16.3 billion for the full year 2022, up 51% y-o-y. Looking at the bottom line, we now forecast EPS to come in at $92.11. Given the changes to our revenues and earnings forecast, we have revised our Booking Holdings’ Valuation at $2328 per share, based on $92.11 expected EPS and a 25.3x P/E multiple for fiscal 2022 – almost 15% higher than the current market price. We believe that the company’s stock appears cheap at the current levels.

The recent sell-off in the stock seems to be an overreaction to what is happening in Ukraine. The company’s exposure in Russia and Ukraine together is quite limited and constitutes a very low single-digit percentage of total bookings as a destination market. While most of BKNG’s business should be unaffected by the war in Ukraine, intensifying economic sanctions or a refugee crisis across the European continent could make the situation worse. In such a case, it is likely that the broader markets may see lower levels in the near term. And, a further dip in BKNG stock can be used as a buying opportunity for better gains in the long run.

Here you’ll find our previous coverage of BKNG stock where you can track our view over time.

While BKNG stock looks poised for more gains in the future, it is helpful to see how its peers stack up. Check out how Booking Holdings’ Peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.

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[1] Month-to-date and year-to-date as of 3/15/2022
[2] Cumulative total returns since the end of 2016