Expedia, Orbitz deal likely not getting DC approval: UBS
If there is any sector that can be considered an indicator on how consumers are feeling about their financial health – it's the travel and tourism industry.
Expedia (EXPE) and Orbitz Worldwide (OWW) may benefit from Americans feeling more positive about their personal economies this summer. “The consumer is quite strong. People are traveling this summer,” says Eric Sheridan, analyst at UBS. Sheridan covers both online travel sites and expects Expedia to earn $0.81 a share when it reports after Thursday’s close. The Street’s consensus is for second-quarter profit to come in at $0.84 a share.
Despite the lower estimate for the quarter, UBS still has a “buy” rating for the stock with a $110 price target. Growth for the business is “ really on the hotel side,” says Sheridan.
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For airlines “there aren’t a lot of economics left for the online travel agencies to...price appropriately against each other.” Consolidation in the airline industry has reduced large U.S. carriers to just four including American (AAL), United Continental (UAL), Delta (DAL) and Southwest (LUV).
The deal making also applies to online travel sites. Expedia is currently in the process of buying Orbitz, which is why Sheridan recently downgraded the latter to a “sell” rating.
“We really think the likelihood that deal gets regulatory approval in DC is going down.” he says. “If that deal were to not go through, the stock would drop quite a bit,” warns Sheridan.
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