THE HEDGEYE EDGE
Following the solid print and quarter, the set up for Booking Holdings (BKNG) continues to fall right in our sweet spot here at Hedgeye Gaming, Lodging and Leisure. With negative leaning sentiment, the company gaining incremental room nights share globally, and out-year estimates still too low, we see a chance for BKNG’s stock to really take off. BKNG is a company that packs the punch on scale, execution, and positioning within the travel ecosystem and poised to generate significant cash flow – cash flow that is very much underappreciated by the current slate of sell side coverage.
Following two years of extended core business deceleration, we’re starting to see a critical phase transition start at BKNG. First, stabilization of the core is occurring, and we see a sustained reacceleration that should attract even more incremental investors. BKNG is a stock that should screen very well with the GARP (and even value) crowd out there, but it may take a few more quarters of that consistent bookings growth, revenue, and FCF growth to really transition the investor base and interest.
Sure, Q2 and a solid Q3 guide are out of the bag, so what’s next? Well, we think the story actually gets even more attractive from here. Though management tempered expectations around early results of their merchant investments and ad leverage, we see the 2H set up as very favorable. While the Q3 room nights comp will be tougher on a 1YR basis, the 2YR stack eases for both Q3 and Q4, and all the while, EU macro and global macro could begin to stabilize in a few months.
Our work and conversations with the investment community suggest that many investors that could and should be invested in BKNG are just still not there yet. But that could be set to change over the NTM. The GARP and Value crowd remain underinvested in this cash flow generating machine, and we think the stabilization in room nights growth, coupled with stellar FCF conversion, and a robust capital return program could really help drive incremental buyer interest. This process has already started, but in our view, there’s a long way left to go and remains a key catalyst for multiple expansion over the NTM.
With $14.2B remaining on their current repurchase authorization and a very flexible balance sheet, we see capital return as likely to exceed expectations in the coming quarters and believe it will be a major catalyst to drawing in prospective investors.
ONE-YEAR TRAILING CHART
