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Analyst's upgrade fuels Priceline liftoff

Shares fly high after a Goldman Sachs analyst says the company is well on its way to recovery and predicts strong results in its first quarter.

    Priceline.com shares were flying high after a Goldman Sachs analyst said the company is well on its way to recovery and predicted strong results in its first quarter.

    Shares in the e-commerce company, which lets users bid for airfare, hotel rooms and other services, were up $1.12, or 23 percent, to $5.97, a significant rise from their 52-week low of $1.06.

    Priceline, based in Norwalk, Conn., will report first-quarter earnings after the bell Tuesday.

    Goldman Sachs analyst Anthony Noto upgraded the stock to "market outperform" from "market perform," based on improvement in the company's outlook.

    Priceline "is still in a turnaround phase, but the progress made to date positions the company to better control its destiny with (the first quarter) potentially being its last unprofitable quarter," he wrote.

    Priceline had missed estimates by a wide margin in its fourth quarter but projected that it could turn a profit by its second quarter.

    Management has improved the company's cost structure by cutting costs and postponing an expansion that would not have been profitable for at least 12 months, Noto said.

    The airline industry overall is also seeing a turnaround, Noto observed. He said the situation is "the opposite of conditions in (the third quarter of 2000) that derailed (sales) growth," with airline cost increases and declining percentages of seats sold.

    Competitor Expedia's report after Monday night's bell gives credence to the predictions for an industry recovery. Expedia reported its first operating profit and said it was seeing strong momentum.

    For the first quarter, Noto predicts Priceline will see 17 percent sequential revenue growth, which in turn will drive a 65 percent sequential improvement on the bottom line, to a loss of 5 cents a share. First Call's consensus also predicts the company will report a loss of 5 cents a share in its first-quarter report.

    In regard to the second quarter, Noto said he expects positive pro forma earnings per share. First Call's estimate is projecting a breakeven amount per share.