Goldman: Priceline is Worth $49 a Share

Priceline (PCLN), the hilarious DotCom retailer whose spokesman, Captain Kirk (William Shatner), challenged consumers to name their price for airline tickets, that beat analysts’ profit estimate of 67 cents a share, excluding some items, with 72 cents a share, and Goldman Sachs analyst Anthony Noto Thursday morning said analysts’ estimates are still underestimating the company.

Priceline is one of Goldman’s favorite small cap companies, wrote Noto, raising his revenue and EPS estimates for the fiscal years ending this Dec. and in ‘07 and ‘08. With expectations for $1.85 and $2.60 in e.p.s this year and next, Noto is above Street estimates of $1.60 and $2.30, according to Thomson Financial.

The particulars:

Priceline reported 3Q2006 revenue and EPS that exceeded our recently revised estimates by 3% and 6%, respectively. Gross bookings, revenue, and EPS came in at $903 mn (up 48% yoy), $312mn (up 21% yoy), and $0.72, versus our estimates of $910 mn (up 49% yoy), $304 mn (up 17% yoy), and $0.67. Priceline’s strong results and trends reflect its continued execution internationally that saw an acceleration in growth. Hotel room nights sold increased 50% yoy, ahead of our 45% estimate and rental car days increased 21% yoy versus our 15% estimate, offsetting weaker-thanexpected airline tickets sold, down 2% yoy versus our up 4% estimate. Operating margin increased ~300bps to 12.3%, versus its record 9.4% in 2Q2006. We are raising our 2007 and 2008 EPS estimates again by ~3%.

We expect 3Q2006 results and revised 2007 EPS guidance to be positive for Priceline shares as the company’s results and revised full-year 2007 EPS guidance of $2.52 at the mid-point imply that street estimates for 2007 of $2.30 are too low, supporting share appreciation. Specifically, Priceline adjusted 2007 EPS guidance to incorporate the ~10% reduction in share count resulting from the repurchase of 3.85 mn shares of outstanding stock concurrent with the pricing of its new convertible senior notes during the quarter.

We are rolling forward valuation to a 12-month price target of $49 (versus prior 3-month target of $45). At $49, Priceline would trade at 17X our 2008E EPS of $2.86, a PEG of 1.5X, and an 11% EPS CAGR from 2008-2011. Our sum-of-the-parts valuation analysis yields a $50 value.