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Will Priceline (PCLN) Beat Estimates this Earnings Season?

The Priceline Group Inc.PCLN is slated to report fourth-quarter 2016 earnings on Feb 27 after the bell.

The company is one of two leading players in a highly fragmented online travel booking market, the other one being Expedia EXPE . But the two companies are different because Priceline generates most of its revenues overseas, particularly Europe while Expedia is more focused on North America. Both companies are expanding geographically.

Priceline is focused on improving the travel booking experience, which is likely to have an impact on results.

Another emerging trend is the alternative accommodations segment, where both Priceline and Expedia have been strengthening their presence. Privately-held Airbnb is the frontrunner here but the leading Open Travel Alliances (OTA) has a huge reach and can come up strongly from behind.

In terms of share price movement, Priceline has underperformed the Zacks Internet Commerce industry over the last one year. While the industry gained 46.1%, the stock returned 30.8%.

Let's take a quick look at how Priceline has been doing recently:

Factors to Consider

Last Quarter Recap: Priceline.com's (PCLN) third-quarter 2016 earnings and revenues not only came ahead of its guidance but also increased year over year.

Both agency and merchant businesses showed strong momentum. Room nights grew much faster than in the recent past. Rental cars also performed impressively. The only point of weakness was airline tickets.

Fourth Quarter Expectations : For the fourth quarter, Priceline expects room nights booked to grow 20-25% and total gross bookings to grow 16-21% year over year (17-22% on a constant currency basis).

Priceline expects gross profit dollars to increase 13-18% (14-19% on a constant currency basis), with adjusted EBITDA in a range of $755-795 billion.

Pro forma EPS is expected to come in a range of $12.20-$12.80, much lower than the Zacks Consensus Estimate of $12.98 at the midpoint. GAAP EPS is expected in a range of $11.40-$12.00 a share.

Beginning with the fourth-quarter of 2016, Priceline is changing its reporting for non-GAAP financial metrics. Adjusted EBITDA and non-GAAP net income will include cost of stock-based compensation. Also, the company will no longer reduce income tax expense for the impact of non-operating loss carry-forwards.

Attractive Industry

The U.S. Commerce Department estimates international travel to the U.S. to grow at a CAGR of 3.3% from 2016 to 2021. Inbound travel volumes from Mexico, China, Canada, India and South Korea will be the highest during this period. Visitor volume in 2016 is expected to be down 0.9% from 2015. Moreover, market research data indicates that prices are rising across the world, with the biggest increases in Central/South America and the Middle East/Africa. Since it is a major international player, these trends play into Priceline's sweet spot.

What Do the Numbers Say

The company has topped estimates in each of the last four quarters at an average rate of 7.59%. Not just that, the company hasn't missed estimates in any quarter since 2012, which is a very big deal and seems to indicate that this quarter will be no different.

According to the Zacks model, a company with a Zacks Rank #1 (Strong Buy), 2 (Buy) or #3 (Hold) will have a good chance of beating estimates if it also has a positive Earnings ESP . The Sell-rated stocks (Zacks Rank #4 or #5) are best avoided.

Priceline has a Zacks Rank #3 and an Earnings ESP of +0.46% and that indicates a likely positive surprise. You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter .

The Priceline Group Inc. Price and EPS Surprise

The Priceline Group Inc. Price and EPS Surprise | The Priceline Group Inc. Quote

Summing Up

Priceline belongs to an attractive industry and has a strong international presence, which is particularly positive for the business although FX remains a concern. The company has a solid history of positive surprises and this quarter may not be different. Its positive earnings surprise and a favorable Zacks Rank #3 enhances the likelihood of a positive surprise.

Other Stocks to consider

ARRIS International plc ARRS with an Earnings ESP of +1.56% and a Zacks Rank #2.You can see the complete list of today's Zacks #1 Rank stocks here .

Costco Wholesale Corp. COST with an Earnings ESP of +0.74% and a Zacks Rank #3.

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Expedia, Inc. (EXPE): Free Stock Analysis Report

The Priceline Group Inc. (PCLN): Free Stock Analysis Report

ARRIS International PLC (ARRS): Free Stock Analysis Report

Costco Wholesale Corporation (COST): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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