Expedia Inc. (EXPE) is set to report first-quarter 2014 results on May 1. Last quarter, the company posted 6.6% positive surprise. Let’s see how things are shaping up for this announcement.
Growth Factors This Past Quarter
Expedia’s fourth-quarter earnings of 81 cents soared 52.2% year over year — the highest in five quarters — driven by strong growth in the online travel booking industry. Revenues of $1.15 billion were down sequentially but up year over year, attributable to healthy growth rates across most brands, especially for Expedia, Trivago and Hotels.com.
Margins were, however, affected in the quarter due to lower volumes. We believe Expedia’s growth in Asia (much lower ADRs and revenue per room night) remains stronger than in other regions and will likely have a negative impact on margins, while driving up volumes.
Additionally, TripAdvisor’s transition to the metasearch model had a positive impact on the last quarter’s results.
Our proven model does not conclusively show that Expedia will beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. That is not the case here as you will see below.
Zacks ESP: Both the Most Accurate estimate and the Zacks Consensus Estimate stand at 2 cents. Hence, the difference is 0.00%.
Zacks Rank: Expedia’s Zacks Rank #2 (Buy) when combined with a 0.00% ESP makes surprise prediction difficult.
We caution against stocks with Zacks Rank #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.
Other Stocks to Consider
You could consider other stocks with a positive Earnings ESP and Zacks Rank #1, 2 or 3 such as:
North American Palladium Ltd. (PAL), with Earnings ESP of +33.33% and a Zacks Rank #1 (Strong Buy).
Salix Pharmaceuticals Ltd. (SLXP), with Earnings ESP of +29.27% and a Zacks Rank #1.
Advanced Energy Industries, Inc. (AEIS), with Earnings ESP of +10.00% and a Zacks Rank #1.