Piper Jaffray has upgraded its rating on Expedia Inc (NASDAQ:EXPE) to an Overweight from a Neutral while increasing its price target to $140 from $130. The research firm has raised the rating on the basis of two factors; HomeAway synergies and core strength. In the research note, analyst Michael Olson stated that the acquisition of HomeAway will increase the EBITDA of the company despite the increase in operating expenses (OpEX).
Expedia’s management plans to reinvest any additional EBITDA for marketing purposes, which will eventually yield free cash flow for the company’s shareholders in future. Moreover, Expedia management believes that 70% of additional revenue after acquisition will be absorbed by the increase in OpEx. Therefore, it is expecting EBITDA of $350 million from HomeAway, which is a bit conservative.
The research analyst opposed Expedia’s EBITDA guidance as he believes that revenue generated by HomeAway will be enough to cover any increase in OpEx while boosting Expedia’s revenue significantly. He further stated in the research note that guest-booking fee form HomeAway will add up $1 billion alone to Expedia’s revenue by 2018. Therefore, he has raised the earnings per share (EPS) estimate for fiscal year (FY) 2016 to $4.95 from $4.86 and for FY17 he increased the EPS estimate to $7.12 from $5.57.
As per data gathered by FactSet, five analysts suggest a Strong Buy for Expedia stock, 10 analysts rated it a Buy while 11 recommend a Hold. The company’s stock has a $134 12-month consensus price target. As per Zacks Research, Expedia stock will be trading in the range of $95 to $180 in the coming 52-weeks’ time. The company’s stock is currently trading at $109.67 up 3.77% as of 11:03AM EST March 10.