A Confirmed Breakout in This Stock Could Yield 39% Profits
If the winter blues have you thinking of heading off to a warm, sunny destination, you might find a hotel, flight or car rental deal through the online travel site, Expedia (NASDAQ: EXPE). Expedia is the largest online travel agency in the United States, based on bookings. It generates the majority of its revenue from offering cut-throat deals on hotels, flights and car rentals.
The company doesn't just appeal to cost-conscious U.S. travelers. Expedia is gaining international popularity, too. Over the past five years, revenue from international markets has nearly doubled. Europe and Asia-Pacific are particularly hot growth spots. Travelers there, especially from emerging markets in Asia, are seeing a rise in their disposable income, allowing them to spend more on getaways.
In addition to international expansion, strategic sell-offs, acquisitions and collaborations have led to Expedia's growth. About a year ago, Expedia spun off the travel site TripAdvisor (NASDAQ: TRIP). More recently, the company's corporate travel management branch, Egencia, acquired the Nordic-based travel management company, VIA Travel. The move helped expand Expedia's European corporate travel portfolio.
Expedia is also engaged in a joint venture with Air-Asia, collaborates with Fotopedia Paris and Japan, and is gaining presence in China through its partnership with eLong, the leading online Chinese travel planning site. All of these growth opportunities should help Expedia continue to expand well into the future.
From a technical perspective, shares of the online travel company certainly look bullish. After hitting an October 2011 low of $21.97, the stock formed a major uptrend and shares have nearly tripled in value.
In late April, the stock jumped several dollars in a week, surging from around $30 to $40. Since that time, an accelerated uptrend line has formed, with shares continuing to climb steadily. The stock is now testing resistance near a multi-year high of $62.26. If resistance can be definitively broken, an ascending triangle pattern will be bullishly completed.
According to the measuring principle for an ascending triangle -- calculated by adding the height of the triangle to the breakout level -- the stock could potentially reach a new price target of $86.52 ($62.26-$38 = $24.26; $24.26+$62.26 = $86.52). At current levels, this target represents 42% potential gains.
However, with no nearby historical resistance in sight, shares could potentially soar even higher. The stock has not seen these levels since reaching its all-time high of $70.08 in October 2007.
The bullish technical outlook is supported by strong fundamentals. Due to aggressive international expansion, analysts project full-year 2012 revenue will rise 15% to $4 billion from $3.5 billion last year. In the first quarter of 2013, analysts expect revenue will expand 16% to $945 million compared with $816.5 million in the comparable year-ago period.
The earnings outlook is similar. As the travel site continues to attract a growing number of international travelers booking hotels online, analysts project full-year 2012 earnings will rise 13% to $3.12 per share from $2.75 last year. For the first quarter of 2013, analysts expect hotel bookings, especially in Europe and Asia, will cause earnings to jump about 19%, to $0.31 per share from $0.26 per share in the year-earlier quarter.
In addition to a strong fundamental outlook, Expedia also rewards its shareholders with an annual dividend of $0.52 per share for a 1% yield. And shareholders of record on or before Dec. 17 will receive a special dividend payment of $0.52 per share on Dec. 28.
Risks to consider: The world economy remains fragile and travel is an easily cut, discretionary expense. If less people travel, Expedia will generate fewer online sales. However, with a focus on international expansion, especially in the European and Asian-Pacific markets, Expedia should continue to see strong growth opportunities ahead.
Recommended Trade Setup:
-- Buy EXPE if shares break above $62.26
-- Set stop-loss at $49.99, near a shelf of support
-- Set initial price target at $86.52 for a potential 39% gain by late 2013