In early trading, Priceline shares were up 73 cents to $8.56. Shares of Priceline have bounced from a 52-week low of $1.06. But by the close, the stock was down 3 cents to $7.80.
Blodget upgraded the stock from "neutral" to "accumulate" Monday based on his belief that the company can seize a strong position in the online travel market, will report strong second-quarter earnings, and trades at a discount relative to its competitors. What's more, Blodget said in a research note that the current economic environment is actually a boon to the company's business.
Priceline should be able to "complete (its) turnaround and build a viable business in the growing online travel market," which was worth $17 billion in 2001 and is expected to grow nearly 25 percent per year through 2005, according to Blodget. Analysts have been upgrading Priceline based on the potential of the online travel industry.
Online travel companies are among the few dot-coms thriving. Expedia and Travelocity have posted pro forma profits, and Priceline predicted profitability on its first-quarter conference call. Back in its first-quarter report, the company raised its projections for the second and third quarters. Management projected earnings of 1 cent to 2 cents per share on second-quarter revenue of $297 million to $310 million.
Blodget said he expects the Norwalk, Conn.-based company to meet its own raised expectations when it reports July 31, and to top consensus estimates. He expects it to make 2 cents a share in the second quarter, vs. First Call's consensus estimate of a penny, and he expects revenue of $313 million vs. the consensus estimate of $302 million.
The analyst also raised his earnings estimates for the year. In 2001, he now expects the company to post a profit of 3 cents to 4 cents a share, and in 2002, he expects earnings of 17 cents to 20 cents a share on a pretax basis.
"The stock's valuation (is) attractive," Blodget said, especially compared with Expedia's, which trades at 84 times his 2002 earnings estimate, and Travelocity, which trades at 58 times the estimate. Priceline is a bargain, trading at only 39 times his 2002 estimate of 20 cents a share.
And unlike most companies, Priceline appears to be profiting from the economic slump.
"We believe the weak economy increases Priceline's attractiveness to both consumers seeking cheaper fares and travel suppliers seeking higher yields," Blodget said.