Expedia Still A Favorable Risk/Reward After Q2 Beat

Shares of Expedia Inc (NASDAQ: EXPE) hit a new all-time high on Friday in reaction to its second-quarter results and are up by more than 40 percent since the start of 2017. Yet UBS's Eric Sheridan maintains a Buy rating on Expedia's stock with a price target boosted from $155 to $178.

Expedia's earnings report not only exceeded investor expectations but also showed:

• 1. Lodging room nights stayed grow of 21 percent.
  2. Strong top-line performance in the core online travel agency.
  3. A 2-percent year-over-year increase in average daily rate (ADR).
  4. Take rate grew year over year for the second consecutive quarter.

On the other hand, the analyst highlighted a few concerning aspects, including:

• 1. A 370-basis-point deleverage in sales and marketing.
  2. A 600-basis-point sequential deceleration in air tickets sold on a 700 basis point easier comp.
  3. No upward guidance revision to adjusted EBITDA growth despite a beat in the quarter in profit.

Balancing the positive and negatives, the analyst feels that Expedia remains a favorable stock to own given superior organic hotel trends, expectations that marketing spend will deliver a 23 percent room night growth, and positive expectations from HomeAway.

Finally, Expedia's stock is still trading at a "reasonable" forward valuation against its underlying asset value.

At last check, shares of Expedia were up 3.63 percent at $159.87.

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