Priceline.com Soars

Priceline.com Soars Following Earnings Report, Threatens Short Sellers

Leading discount travel company impresses Wall Street with solid earnings report

by Joseph Hargett (jhargett@sir-inc.com) 2/19/2009 10:50 AM

Shares of priceline.com Incorporated (PCLN: sentiment, chart, options) have soared more than 17% so far this morning, as traders react to the company's stronger-than-expected quarterly report. After the close last night, Priceline said that fourth-quarter profit rose to $33.3 million, or 73 cents per share, from $32.9 million, or 68 cents per share, last year. On an adjusted basis, earnings arrived at $1.29 per share. Revenue rose to $406 million from $334.9 million last year. Analysts were looking for a profit of $1.05 per share on revenue of $378.1 million.

Looking ahead, Priceline said it sees first-quarter adjusted earnings of 85 cents to 95 cents per share. Wall Street's consensus first-quarter estimate currently stands at 58 cents per share.

"We are in the midst of a period of unprecedented economic turbulence that is significantly impacting travel demand, pricing and currency exchange rates," said President and Chief Executive Jeffrey H. Boyd. But Boyd noted that the company continued to grow and acquire market share during the quarter.

Analysts were quick to weigh in on the performance, with S&P Equity Research upgrading the shares to "buy" from "hold," and Citigroup boosting its price target to $105 per share from $83 per share. Furthermore, Piper Jaffray said "Despite the macroeconomic slowdown, we expect Priceline to continue to grow through domestic market share gains and a dominant international business."

Digging into the brokerage bunch, we find that 5 of the 9 analysts following PCLN rate the shares a "buy" or better, leaving only a modest amount of room for potential upgrades. Meanwhile, Thomson Reuters reports that the average 12-month price target for PCLN rests at $86.89 per share - a mere 7.5% premium to the stock's current trading range near $80 per share. Should more brokerage firms upgrade the equity or increase their price targets, we could see PCLN extend its recent rally.

Checking the Charts

Speaking of technical strength, PCLN has enjoyed a solid run higher since rebounding from its October 2008 lows. Specifically, the shares have added more than 79% since hitting a low of $45.15 on Oct. 28. The stock has been aided in its run higher by support at its 10-week and 20-week moving averages. Furthermore, today's earnings-induced rally has placed PCLN above formerly staunch resistance at the round-number 80 level. If the equity can close the week above this area of long-term resistance, it could be a bullish sign for the shares.

Such a bullish technical move could be trouble for short sellers. Following a 4.27% increase in the number of PCLN shares sold short during the most recent reporting period, more than 23% of the stock's float is now sold short. If the security can establish a foothold above the 80 level, it could spook these bearish investors into buying back their positions, potentially resulting in a short squeeze, or short-covering rally, for PCLN.