Booking Holdings is my Top Pick, this investor says

The stock has pulled way back in recent weeks but that’s all the more reason to be checking out travel tech company Booking Holdings (Booking Holdings Stock Quote, Charts, News, Analysts, Financials NASDAQ:BKNG). That’s according to portfolio manager Gordon Reid who thinks BKNG is a great reopening play.

Booking’s shares fell about ten per cent after the company released its fourth quarter financials last month with management sounding cautious in its outlook for the year ahead for Booking, which owns a number of travel and accommodation fare aggregators such as Booking.com, Priceline.com and Cheapflights.

“I am encouraged by the meaningful improvement in bookings we have seen so far in the first quarter of 2022,” said Glenn Fogel in the company’s February 23 press release. “I believe we are well positioned as travel demand recovers, however, we do expect there will still be periods where COVID negatively impacts travel trends as we move through the year. As we look ahead to 2022, we remain focused on driving benefits to our traveler customers and to our supply partners alike while executing against our strategic priorities including building towards our Connected Trip vision.”

Booking registered top and bottom line beats of analysts’ estimates with its fourth quarter numbers, showing revenue up 141 per cent to $2.981 billion compared to the pandemic-impacted Q4 2020, while adjusted EPS was $15.83 per share compared to the Street’s consensus call of $13.64 per share. (All figures in US dollars.)

For the full 2021 year, Booking saw gross travel bookings rise 116 per cent compared to 2020 to $76.6 billion with revenue up 61 per cent to $11.0 billion.

“In the fourth quarter and for the full year, we saw a consistently higher mix of our customers booking directly with us than in 2019, and our direct mix improved even as we leaned into performance marketing channels during the year. We will continue to lean into performance marketing channels at appropriate ROIs as we look to bring more customer demand to our platform during the recovery,” Fogel said in the fourth quarter conference call.

Since starting out as Priceline.com in 1997, Booking has made over a dozen big acquisitions over the years, bringing on, for example, Kayak.com in 2012 for $1.8 billion and OpenTable in 2014 for $2.6 billion. Its latest purchase was B2B distributor of hotel rooms Getaroom, bought in December for $1.2 billion.

“By combining the technology and expertise of Getaroom and Priceline, we believe we can increase value for both hotel and affiliate partners,” said Priceline CEO Brett Keller in a press release.

Booking’s share price had a remarkably positive year in 2020 where the stock returned eight per cent and then 2021 delivered another seven per cent. And things were looking equally good at the start of this year before the Q4 report. Now, the stock is down about 15 per cent year-to-date and is trading around the $2,000 per share mark compared to its price of about $2,700 a month ago.

But Reid sees a lot of light at the end of the tunnel for Booking.

“Booking is a brand new inclusion in our US large cap portfolio [but] it’s a company we’ve got a lot of history with. Back 20-plus years ago, it was a very small company in our US small cap portfolio. We bought it at $19 a share so it’s obviously grown a long way from there,” said Reid, CEO of Goodreid Investment Counsel, who in a BNN Bloomberg segment on Thursday named Booking Holdings one of his Top Picks for the 12 months ahead.

“We sold it in around the $300 mark, bought it again around $600 in our large cap portfolio, sold at around $1,300 at the March, 2020, period and we bought it back,” he said. “The war in Russia and Ukraine gave us an opportunity here.”

Fellow online travel and shopping stock Expedia Group (Expedia Group Stock Quote, Charts, News, Analysts, Financials NASDAQ:EXPE) has followed a path similar to BKNG over the pandemic, rising incrementally over 2020 and 2021 but now slightly under water for 2022. 

But Booking’s profitability is going to be outstanding going forward, says Reid.

“This is a 21st century opportunity or answer to the travel business. They grow very well and the model is incredibly efficient,” Reid said. 

“We believe that they’ll make $90-plus a share this year, but that’s just the beginning. We think that by mid-decade they can grow into at least $150 a share of earnings, and that will lead to a much higher stock price,” he said. 

“So, this is a company that fits in well not only from a bottom-up standpoint but from a top-down, macro standpoint on renewed travel. We’re just very excited to be owners of this stock here,” he said.