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.
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