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Tech Industry

ANALYST WATCH: Coming to defense

Some discouraging news regarding prompted analysts to do a little damage control this week, highlighting the unpredictable nature of a stock considered one of the best in its sector.

And if the leaders, the household names of the Internet sector are scuffling, you can bet the second- and third-tier players are in worse shape.

It's going to be a long, depressed summer for most of these stocks. Not much happens, especially for 'Net retailers, until the fourth quarter.

Between now and the end of the year, expect these companies to spend a considerable amount of time putting out small fires both real and perceived. (Nasdaq: PCLN) fell into that perceived category this week.

The de facto online travel site took its turn as the whipping boy this week, losing about 8 percent in a single day after it came to light that a group of airlines are investing in their own Web site, called, to offer discounted airfare to online travelers.

But analysts were quick to point out that if and when this launches, it doesn't necessarily mean the end of's run atop the online airfare mountain.

Lauren Cooks Levitan at Robertson Stephens said has too much going for it to be terribly concerned about

"By our accounts, like the much-hyped travel industry consortium Orbitz, Hotwire potentially has the makings of a classic case of overpromise-and-underperform given consistent launch delays," she said in a research note. "In our view, the reaction of Priceline's stock demonstrates that many investors still do not understand Priceline's story."

Levitan and Merrill Lynch's Henry Blodget both say its diversification into several other industries such as cars, hotels and long-distance phone service will help cushion whatever blow may come from this new competition.

Blodget estimates major airlines have roughly 700,000 empty seats a day with selling about 20,000 seats on a good day. Even if were able to get off the ground and eventually become as proficient as, there's still plenty of tickets to sell.

In its own defense, officials note that will offer discounted rates for customers to choose from, a clear distinction from its popular name-your-own-price format.

Levitan points out that has the fourth most-recognized Internet brand behind America Online (NYSE: AOL), Yahoo! (Nasdaq: YHOO) and (Nasdaq: AMZN). She also said its management is perhaps the best team in the Internet sector.

Still the threat of a possible competitor did make at least one analyst change his opinion on

Janney Montgomery Scott's Isakowitz Tomas cut the stock from a "buy" recommendation to "accumulate" Thursday, primarily on valuation concerns.

"The downgrade mostly has to do with valuation," Tomas said. " means a little more competition and a little more risk, too."

However, when I ask Tomas why he had suddenly become so worried about's valuation, especially considering the stocks has been in a nose-dive for the past three months, he turned cold.

Tomas refused to explain himself unless he could read the quotes attributed to him before publication.

Maybe Tomas has been burned in the past by sloppy or malicious journalists, but you'd think he'd want to explain his ill-timed downgrade.

Regardless, 18 of the 19 analysts following the stock maintain either a "buy" or "strong buy" recommendation, a clear indication that not all analysts run for cover at the first sign of trouble.

Six months from now, we'll take a look at how has impacted's sales and status. Or, perhaps, the lack of impact it has made.

We'll also check back on Tomas to see if he's willing to either take credit for his bold downgrade or finally answer the questions he dodged this week.