Why Expedia (EXPE) is a Strong Buy Ahead Of Earnings

If you pull up Expedia’s (NASDAQ: EXPE) price chart, you’ll see that the stock has experienced significant moves since the start of the year. Actually, it’s easier if I just show you.

After reaching a 52-week high of $303 in early January, it lost about 37% in value by mid-February, dropping to levels as low as $188. However, thanks to a standout earnings report (also in mid-February), a reversal happened, and price action has been positive since.

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I think this might be a real opportunity, but it’s on the way out. Let me tell you why.

First, we’ll deal with the fundamentals, and then I’ll get into the setup.

Here’s what you might not see right away about EXPE…

Our in-house quant rating system, Zen Ratings, looks at stocks through a lens of 115 fundamental factors split across 7 categories. Only the top 5% of stocks are given a Zen Rating of A, equivalent to a Strong Buy rating. Stocks of that caliber have provided an average annual return of 32.52% since the early 2000s. EXPE is one of those stocks. In fact, it ranks in the top 3% for overall fundamentals at the moment.

Those 7 categories I mentioned are called Component Grade ratings, and they tell you what a stock’s specific strengths and weaknesses are.

As you can see, Expedia shares generally carry B ratings for these categories — which signifies an above-average placement.

When it comes to Sentiment, for example, EXPE ranks in the top 18%. The stock is currently a consensus Buy per Wall Street analysts, and the average price target implies an upside of 12.42%. The Street-high forecast, however, implies upside of about 43%.

In fact, Wall Street is increasingly on board with EXPE. That Street-high forecast came from B. Riley Securities’ Naved Khan, who ranks in the top 11% of analysts when it comes to actual stock picking performance. Evercore’s Mark Mahaney ranks in the top 3% — his price target implies an upside just slightly north of 39%. Bank of America’s Justin Post sees almost 30% upside in the cards, and so does Eric Sheridan from Goldman Sachs (top 3%). No need to hammer the point any further; a lot of conviction from some of the top names on the Street.

But Sentiment isn’t the only thing EXPE has going for it. With regard to the Growth rating, it ranks in the top 17%. Earnings are expected to grow by 37.15% per year, significantly ahead of the industry average of 23.45%.

We’ve also got a pretty healthy balance sheet — top 7% for Financials, and, most importantly, a very appealing valuation. EXPE ranks in the top 6% when looking at the 22 different valuation metrics that make up our Value rating. Right now, the stock is trading at about 13x forward earnings, and it has a price-to-earnings growth (PEG) ratio of 0.66x. Our own Discounted Cash Flow model puts the stock’s fair value at about $418 — almost 40% higher than where it’s currently at.

Lastly, this is the top-rated stock in the entire Travel industry, which has an Industry Rating of B.

Alright; that’s the fundamentals out of the way. So, why now? Because I think Expedia can easily breach its 52-week high in the next couple of months. To explain why, I’m going to have to show you what the consistent pattern of outperformance they’ve provided looks like.

Just keep this in mind before looking at the image below; 11 straight quarters of beating EPS estimates.

As you can see, most of these weren’t small surprises — but genuinely strong execution far above what Wall Street was expecting, back-to-back, since Q2 of 2023. And look at the year-over-year (YoY) growth in EPS.

The next earnings report is on May 7th. That $1.41 EPS forecast might seem like a red flag at first, but remember, travel is a seasonal business — and that figure is still 3x bigger than what was delivered in Q1 of last year.

Let’s put all of this into perspective. The stock hits a 52-week high, then loses 37% in value. Thanks to a great quarter, the stock then rallies 33%. It still has to surge by about 20% to come back to that 52-week high. Some of the top-rated analysts on Wall Street believe that this 20% (or more) surge is exactly what’s going to happen. Plus, you have a great valuation, and a very established pattern of outperformance. The bullish case is simply stacked — but if it keeps rallying, the main advantage (the valuation) will, logically, only become less appealing as time goes on. I’d be very confident in opening a position right now.

—> Click here to research EXPE

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