Orbitz (OWW): Too Much Competition and Consumer/Air Exposure

Citi initiated coverage of Orbitz (OWW) at Neutral, but with a lofty target price. The $9.50 target is over 30% above the current stock price, but Citi was unwilling to recommend a buy because of the speculative nature of the stock. Citi:

Several factors make OWW a potentially compelling long:

1) OWW’s valuation (7.6X ’08 EV/EBITDA, 9% FCF yield) is intrinsically attractive; 2) The outlook for easier top-line comps though the balance of the year; 3) The potential impact of ongoing platform and marketing improvements; 4) Underlying secular growth in online travel; and 5) Potential
sector consolidation. BUT…

Risks Are Significant:

1) Substantial competition from Priceline and Expedia have translated into market share losses; 2) Dependence on at-risk consumer bookings fees is very significant; 3) Management execution still unproven – limited international & non-air expansion; 4) Current travel market conditions are weak.

Citi prefers Expedia (EXPE) and thinks Priceline (PCLN) is too expensive.

Citi initiates a HOLD, target price $9.50.

See Also:

Europe and Consumer Catalysts For Expedia (EXPE)? We Doubt It. Maybe Buyback (EXPE)

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