There is no doubt that Raymond James loves Priceline (PCLN), and who can blame them? PCLN has done pretty much everything possible but walk on water, and the brokerage firm is rewarding that execution by upping its one year target price 10% from $620 to $685, citing higher earnings estimates for 2012.
Raymond James is probably not being totally objective in its analysis, especially considering they have a lot on the line (they are one of PCLN's largest shareholders). The truth is, the better PCLN performs, the more money Raymond James makes. It seems like a conflict of interest in a way, prompting a skeptic like to me to envision that some of their extreme attraction could be nothing more than a "pump and dump" scenario to protect the bubble from bursting.
The insiders are selling: It is apparent that the insiders are taking advantage of the good times by selling at will! Just since the first of the year, senior executive officers Boyd, Fogel and Peretsman unloaded $5 million worth of their holdings. Can you blame them? The stock is up over 800% in the last three years alone. I think the insiders are smart enough to realize the logic of being a bit fearful when others are greedy, and understand that there will not always be the abundance of greater fools to offload their shares to.
Earnings prospects: PCLN is set to release its 4th quarter earnings results next Monday, after the market close. Analysts expect it to earn $5.05 on revenues of $968 million, but the whisper number is much higher, based on PCLN's typical beat of 10%. With this in mind, look for the travel portal to report a bottom line of $5.45 on sales of $995 million.
The questions are, is this good news already baked into the share price, and will those results actually spur those that bought the rumor to sell the news?
Finally, guidance for 2012 has to be good. Good guidance and great earnings translate into an immediate $600 share price and a further beating of those stubborn enough to still be holding short positions.
Earnings growth stalling: In 2011, earnings growth is expected to be a jaw dropping 75% from $13.49 to $23.55, but in 2012, earnings are forecasted to grow at a much lower 30% clip (from $23.55 to $29.81), still creating a respectable forward multiple of only 30. The stock is still cheap in that regard, and confirming that is a decent PEG ratio of just 1.0.
The conundrum is, the shares have run up so far, in such a short time frame, that they are less than 5% from the average analyst's target price of $620, creating the possibility of potential downgrades, based on targets being met. One thing for sure: If they miss earnings estimates, or provide tepid guidance, the shares could fall over $100 in a matter of seconds. I think bad news will have more impact on the downside than good news will have on the upside, relegating the stock's risk reward ratio at this juncture to unflattering.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
