What happened
Actions of the travel reservations specialist Reserve assets (BKNG 5.65% ) erupted in trading on Thursday, rising 5.9% through 3 p.m. ET. You can thank UBS for this.
So what
You might not think that the midst of a new wave of COVID-19 infections is the best time to kick off coverage for a travel stock like Booking Holdings – but apparently UBS is not. OK. This morning, the Swiss mega-bank announced that it would rate Booking’s stock as a buy and assigned the stocks a very specific price target of $ 2,838, as StreetInsider.com reports.
Image source: Getty Images.
As UBS explained, Booking Holdings is literally its ‘preferred name in travel’, and analyst sees company increase earnings before interest, taxes, depreciation and amortization (EBITDA) by up to 4 percentage points in 2023 as the company sells more bookings directly to customers. Already, these “direct bookings” represent the majority of all the company’s bookings, and UBS expects that percentage to reach 54% over the next two years.
This leaves UBS to project EBITDA margins of 38% by 2023 – slightly lower than the 39% margins the company was earning before the pandemic in 2019, but slightly above Wall Street projections for 37% margins.
Now what
With Booking Holdings’ last 12-month profits only being a small fraction of what the company earned in 2019, for example, it’s hard to explain clearly why this stock is a good deal compared to its price / price ratio. apparent benefit. ratio (P / E) of more than 200 times the profits. Nonetheless, if UBS is correct about Booking’s ability to increase profit margins as business picks up after the pandemic, the analyst believes Booking should soon resume trading closer to its historic P / E average of 22.
Applying this multiple to expected earnings for 2023, UBS concludes that the stock is currently trading at a discount of around 23% to its intrinsic value – and deserves a buy rating.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are motley! Questioning an investment thesis – even our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.