BKNG Stock Study (5-10-23)

I recently did a stock study on Booking Holdings Inc. (BKNG) with a closing price of $2,634.91.

M* writes:

     > Booking is the world’s largest online travel agency by revenue,
     > offering booking and payment services for hotel and alternative
     > accommodation rooms, airline tickets, rental cars, restaurant
     > reservations, cruises, experiences, and other vacation packages.
     > The company operates a number of branded travel booking sites,
     > including Booking.com, Agoda, OpenTable, and Rentalcars.com,
     > and has expanded into travel media with the acquisitions of
     > Kayak and Momondo. Transaction fees for online bookings account
     > for the bulk of revenue and profits.

This large-size company has grown sales and EPS at annualized rates of 7.2% and 4.9%, respectively, over the last decade (’20 excluded due to COVID-19). Lines are mostly up, straight, and parallel with the exception of slight EPS softness in ’16-’17 (goodwill impairment charge with EPS subsequently catching back up to previous trendline in ’18) and ’21 (lower sales and EPS followed by healthy rebound in ’22). PTPM has been higher than peers and the industry with a last-5-year average of 23.5% (no exclusions). Also higher than peers and the industry is ROE with a last-5-year average of 43.8%.

For most of the last 10 years, Debt-to-Capital has been lower than industry averages while roughly equal to peers. The last-5-year average is 65.8%. Current and Quick Ratios are ~1.5 and Interest Coverage is 10.8 per M*. M* also rates Capital Allocation as Exemplary given that the $6.3B debt to mature within the next five years is much less than the projected $30B+ FCF over the same period. Value Line gives a B++ grade for Financial Strength.

I forecast long-term annualized sales growth of 5% based on the following:

• CNN Business projects 20.5% YOY and 15.7% per year for ’23 and ’22-’24, respectively (based on 24 analysts).
• YF projects YOY 20.3% and 11.4% for ’23 and ’24, respectively (30 analysts).
• Zacks projects YOY 19.9% and 10.2% for ’23 and ’24, respectively (6).
• Value Line projects 5.2% annualized growth from ’22-’27.
• CFRA projects 21.0% YOY and 14.4% per year for ’23 and ’22-’24, respectively.
• M* offers a 2-year annualized ACE of 13.7%.

I am forecasting just below Value Line’s long-term estimate (includes zero growth from ’24-’27, which seems good for a conservative projection but puzzling otherwise).

I forecast long-term annualized EPS growth of 15% based on the following:

• CNN Business reports ACE of 35.7% YOY and 26.8% per year for ’23 and ’22-’24, respectively (based on 24 analysts) along with 5-year annualized growth of 21.5%.
• MarketWatch projects 24.4% and 17.5% per year for ’22-’25 and ’23-’25, respectively (32 analysts).
• Seeking Alpha projects 4-year annualized growth of 20.8%.
• YF projects YOY 36.3% and 18.5% for ’23 and ’24, respectively (24), along with 5-year annualized growth of 25.4%.
• Zacks projects YOY 36.5% and 19.6% for ’23 and ’24, respectively (9), along with 5-year annualized growth of 16.5%.
• Value Line projects annualized growth of 15.8% from ’22-’27 [12.5% from ’23-’27].
• CFRA projects 36.3% YOY and 26.4% per year for ’23 and ’22-’24, respectively.
• M* has long-term ACE at 19.9% per year.

I am forecasting below the long-term-estimate range (mean of six: 20.0%).

My Forecast High P/E is 20. Excluding upside outliers of 1547 in ’20 and 95.4 in ’21, over the last 10 years high P/E has ranged from 18.6 in ’19 to 44.1 in ’17 with a last-5-year average of 27.0. Only ’19 is lower than my [conservative] forecast.

My Forecast Low P/E is 15. Excluding upside outliers of 769 in ’20 and 66.1 in ’21, over the last 10 years low P/E has ranged from 14.6 in ’19 to 31.1 in ’17 with a last-5-year average of 18.4. Only ’19 is lower than my [conservative] forecast.

My Low Stock Price Forecast (LSPF) is the default value of $1,529.50. This is 42.0% less than the previous close and 5.4% less than the 52-week low.

These inputs land BKNG in the HOLD zone with an U/D ratio of 1.3. Total Annualized Return (TAR) is 9.3%.

PAR (using Forecast Average—not High—P/E) is 6.4%, which is less than I want to see. If a healthy margin of safety (MOS) anchors this study, then I can proceed based on TAR instead.

To assess MOS, I compare my inputs with those of Member Sentiment (MS). Based on 149 studies done in the past 90 days (my study along with 19 outliers excluded), averages (lower of mean/median) for projected sales growth, projected EPS growth, Forecast High P/E, and Forecast Low P/E, are 11.6%, 14.5%, 29.7, and 20.0. I am lower on all inputs but EPS growth (15.0%). Value Line projects a future average annual P/E of 20.0, which is lower than MS (24.9) and higher than mine (17.5).

With regard to other data, MS high and low EPS are $150.63/share and $66.18/share compared to my $205.10 and $101.97. ’22 EPS of $76.35 at least partially explains this as a much lower initial value for projection than the $101.97/share for Q1 ’23. MS LSPF of $1,395.40 implies a Forecast Low P/E of 21.1 (versus the above-stated 20.0), is 8.8% lower than mine, and is 5.4% higher [more aggressive] than the $66.18 * 20.0 = $1,323.60 default.

I don’t see much MOS behind this study and in retrospect, I would do two things differently. First, as recovery from COVID-19 is underway but not complete, analyst estimates may remain elevated (catch-up to trendline). [As noted above] Value Line long-term EPS estimate starting in ’23 compared to ’22 suggests an EPS growth rate of 12% rather than 15%. Second, Q1 ’23 EPS (annualized) is much greater than ’22. As a conservative measure when I see such leap, I could use the previous (lower) value. These modifications would boost MOS behind this study at the cost of leaving the stock even farther from the BUY zone. Either way, with BKNG up ~35% in the last six months it’s not one I should expect to be near the BUY zone anyway.

I would look to re-evaluate the stock under $2,170/share.