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Should I buy TSG Sabre or EXPE Expedia? Should I chose TSG’s generous dividend yield or EXPE’s market leadership on online travel? December 12, 2006

Posted by deminvest in EXPE Expedia, stock I own, stocks, stocks that pay high dividends, TSG Sabre.
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Let’s face it. We the people do like use the Internet for free.

We do not like to pay somebody we don’t see. And since we are many, we are powerful and we are imposing our Low Cost Society vision: whoever wants to have some success online has to give us services for free!

There is one great exception to this rule: travel sites.

In our great kindness, we are actually ready to award hefty commissions on reservations of hotels trough the Internet. Why? Simply because we don’t notice. We see the price for hotel rooms and we book. Untill free hotel reservation projects gain momentum, we and hotel owners will continue giving between 6% and 10% of room rate to the likes of Expedia, Travelocity, Lastminute.com, Priceline…

Well my simple brain comes out with a simple idea: “If it is so simple to make such commissions without much hassle, probably online travel sites must be good stocks to own”

By a fast research I found out two cadidates:

TSG Sabre owns Travelocity.com and lastminute.com. It also owns the Sabre computer reservation system used by travel agents and airlines

EXPE Expedia owns expedia.com, the leading onlinetravel reservation system and also http://www.tripadvisor.com , a growing community of travellers evaluating tens of thousands of hotels all over the world reporting their stay experience.

To decide wht to chose I will, as usual, give a look at some main numbers:

EXPE Expedia:

Trailing P/E (ttm, intraday): 36.11 A BIT TOO EXPENSIVE
Forward P/E (fye 31-Dec-07) 1: 17.53 …BUT CHEAP IN THE FUTURE. ANALYSTS SEEM TO EXPECT HIGH EARNINGS GROWTH

Qtrly Revenue Growth (yoy): 5.00% ONE WOULD EXPECT A BETTER GROWTH…
Qtrly Earnings Growth (yoy): -28.10% AND BETTER EARNIGS TOO

Total Cash: 945.69M SEEMS A NICE AMOUNT OF CASH, SPECIALLY IF COMPARED TO 6.79B OF COMPANY MARKET PRICE.

Total Debt: 500.26M A BIT TOO MUCH FOR A COMPANY SUPPOSED TO OWN SO MUCH CASH… I THINK EXPEDIA WANTS TO USE THAT CASH TO BUY BACK PART OF ITS SHARES. WHEN THIS NEWS SPREAD EXPE WENT UP 10%.

TSG Sabre:

Trailing P/E: 30.61 CHEAPER THAN EXPE
Forward P/E: 15.61 NICE. ANALYSTIS EXPECT GROWTH. GOOD!

Qtrly Revenue Growth (yoy): 6.60% NOT NICE, BUT SIMILAR TO EXPE
Qtrly Earnings Growth (yoy): 15.50% VERY GOOD… UNLIKE EXPE

Total Cash: 510.96M LESS THAN THE DEBT:
Total Debt: 1.13B

LAST BUT NOT LEAST:

Forward Annual Dividend Yield: 1.80% NOT BAD FOR AN HIGH GROWTH STOCK!

When I was taking a decision both companies went right into the spotline:

TSG: It seems that a private equity company likes TSG and will buy it at a price higher than yesteday’s closing. Maybe it will be impossible to buy it at market opening toaday.

EXPE: They will buy back 30 million of their shares back. it should cost them about 650 M, so they will have less cash than debt when they are done.

The situation is no so confused that the simple guy with no first hand information like can only lose to the Big Guys who know what is going on.

Comments»

1. John - December 12, 2006

I would be careful with EXPEDIA. They cannot be trusted. They are having bad reputation with customers. Even an article in wikipedia mentions that customers complained about several aspect of EXPEDIA’s customer service and some hotels and airlines prefer not to do do business with EXPEDIA. Read the article at wikipedia: http://en.wikipedia.org/wiki/Expedia
you cna also click on my name to read about my case

2. deminvest - December 12, 2006

I guess that your advice is to chose TSG over EXPE… But… On Yahoo Board I see posted:

http://messages.finance.yahoo.com/Stocks_%28A_to_Z%29/Stocks_S/threadview?m=tm&bn=18464&tid=8230&mid=8230&tof=18&frt=2

So what should I chose?

3. Ben - December 13, 2006

You mentioned priceline earlier in your article, but do not consider investing in them? Analysts remain upbeat on priceline. They’ve had a great year thus far and analysts say that signs point to strong growth across the sector in Q4.

4. deminvest - December 14, 2006

So far I have not considered Priceline, because it seem to me a smaller and weaker competitor in an highly competitive business, an it also have debts that may undermine their ability to compete.

PCLN only has Revenue: 1.07B compared to
EXPE: 2.20B
and TSG: Revenue (ttm): 2.79B.

On the other hand PCLN is the only one growing in terms of revenues ( Qtrly Revenue Growth (yoy): 21.10%.

In my opinion the pure business of reservations can give out cash, but in the long run I think the more “Web 2.0” style community on Tripadvisor will help Expedia make its leadership stronger…

Priceline would be interesting if I could understand how they managed to increase their revenue in a time when EXPE and TSG were close to flat.

Maybe you have some idea…

5. Gene - January 12, 2007

Strictly from looking at both of their charts rather quickly, it looks like Expedia is in a rising wedge, the MACD is falling, and the money flow is substantially lowering. I would be looking at shorting EXPE. While TSG is in a flat base, it is difficult to tell whether it will rise or fall. The MACD and the historical MACD are pointing lower, RSI and money flow are lower, and the ADX level is about peaked out at 72. This looks like it can fall hard as well. I would not be a buyer of either at this time, and perhaps I would even short one or both of them, depending on which way it moves. As for Expedia, I use their services all the time and have so far had no problems and I would highly recommend using them. I do not work for Expedia, just giving you my opinion. Good luck with your trading.

6. deminvest - January 12, 2007

Thank you very much for your techinal analisys Gene.

I am very weak on that and really need help on that field. I’ll give a look at your Blog.

Anyway there is some very interesting news TSG:

TSG is and will stay flat because a private equity fund offered to buy it out for $32.75 per share in cash.

7. Gene Breijer - January 29, 2007

I just made a chart on EXPE. Chart is looking a bit choppy, but it looks like the 50 day moving average might just be a good support level, as the 200 day average is at 16.77, which likely will go up. A small doji formed on Friday, but it’s hard to tell which way the stock will move. The market has been choppy, but my guess it the stock may seen seem support at the $20 level or so. This is where the 50dma, and 2 fibonacci levels meet. If it falls below that, look for $19.47 support as that is a strong support. Below that and I would sell. But let’s see what happens at the $20 level first. Good luck with your trading and hope you make some money. There will be an EXPE chart on my blog.

8. deminvest - January 29, 2007

Thanks again for your update on tech analysis. I like when those “cabalistic” (and for me ununderstandable) graphs tell me to buy a company I already like 🙂

9. Rus Kaohe - February 5, 2007

Thanks for the update as well. Looking forward to more.


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