College students love to travel. From spring break to senior class trips to making a weekend junket back to see the parental units, travel is a way of life for collegians. But, is spending money on a good time also a good investment?
As we all learned from 9/11, the travel industry is at the mercy of both the economy and any shocks to the system. In other words, unexpected events can throw a monkey wrench in your travel stock investment plans. But hopefully, travel investors will find clear skies ahead instead of bumpy roads.
Snapshot: A real estate, travel and hospitality giant, Cendant recently purchased online travel service Orbitz to join its vast array of services, which includes the Avis, Days Inn, Coldwell Banker and ERA brand names.
Recent Price: $21.58
- Company pays a strong 6.6 percent dividend yield, paying $1.44 per share. Hey, if all else fails, you’re making a nearly 7 percent return from the get-go. Not too shabby.
- Shares are trading at just 14 times earnings for the past year and 12 times projected earnings, which makes Cendant attractive to value investors.
- Cendant takes in more than $20 billion in revenues and $1.6 billion in net earnings, so there is plenty of cash in the bank.
- With the recent spin off of its PHH division, earnings per share are expected to slow down from $1.78 last year to $1.41 this year.
- Higher gas prices and any significant bump up in interest rates could put a damper on many of Cendant’s popular services.
- Company faces PR hurdle of sentencing and trial of former executives that were accused of accounting wrong-doing. Fortunately, Cendant is moving on from the bitter taste it left in investor’s mouths.
Snapshot: A dot com? You’re kidding, right? Well, let’s see if this online travel and personal finance service is worth you boldly investing where not many have gone in six years.
Recent Price: $24.89
- Yes, the home of some really bad William Shatner commercials is still around, thanks to earning 95 cents a share in the last year, while on track to take in $1.21 for 2005.
- Priceline has beat earnings expectations during the past four quarters by one cent per share three times and five cents once.
- Trading at 16 times 2006 projected earnings, Priceline.com’s current stock price may be fairly valued.
- Beware the reverse stock split. Priceline.com, whose share price once traded for more than $1,000 (split adjusted) dropped to mere pennies during the dot-com crash of a few years ago. So, to make the share price look good, the company did a 1-for-6 reverse split (taking shares off the market to artificially raise the price) in 2003. Not the sign of a good investment by any means.
- Priceline.com has been virtually dead money since the reverse split, which is better than the bloodbath that investors took prior to then.
- While trading at a cheap multiple for 2006, the shares are selling for 32 times 2005 earnings estimates, which could mean some short-term choppiness.
Snapshot: Formerly USA Interactive, IACI is the owner of some very popular businesses, including travel-related Expedia and hotels.com, as well as Home Shopping Network, Lending Tree, match.com and Ticketmaster.
Recent Price: $26.87
- Owned by savvy business maverick Barry Diller, IAC/Interactive has beaten earnings estimates for the past four quarters by as much as 22 percent.
- IACI just shed its 5 percent stake in Vivendi for $3.4 billion, which was a dead weight on its balance and debt sheets. Good riddance!
- Room rates on Expedia have certainly jumped lately, leading to higher fees and revenues, but could potentially slow down demand.
- Priced at 105 times earnings, shares are nowhere near close to selling at a discount.
- With an expected earnings growth rate of 9.3 percent, the company is trailing the S&P 500’s expected growth rate of 11.7 percent. In addition, gas prices and any kind of interest rate shock would wreck havoc on growth rates.
- IAC/Interactive must defend itself from insider trading charges made against its Lending Tree division prior to its acquisition by then-USA Interactive.
* Price quotes are from August 1, 2005.
Michael Abramowitz is a freelance writer based in Florida. To avoid a conflict of interest, he does not currently own any of the stocks mentioned above.
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