Priceline Reports Third Quarter EPS up 48% Year-Over-Year
(PCLN, $1072.47, up $49.58 near the close)
Priceline.com reported third quarter earnings per share (EPS) of $17.30 vs. consensus $16.15 and last year’s $11.66; with gross travel bookings up 37.5% vs. a year ago. The company also announced a CEO change as of January 1, 2014.
Reuters reported eleven investment firms raising their price targets on Priceline shares today. I would like to take this opportunity to say that investors should ignore price targets coming from fundamental analysts, because the numbers are more often than not a belated reaction to good/bad news, pulled out of thin air, and overly cautious. I would, however, pay close attention to anything that technical analysts have to say about potential price movement.
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Time Warner’s Third Quarter Exceeds Expectations
(TWX, $66.48, down $1.21 midday)
Time Warner Inc. reported a strong third-quarter yesterday. Adjusted earnings per share (EPS) came in at $1.01 vs. the consensus estimate of $0.89, and last year’s $0.84. Revenue gains came in on target, led by growth in advertising and cable network subscriber fees. Share repurchases were $1.08 billion for the quarter, and are expected to total $3.65 billion for the full-year.
Morgan Stanley commented today, “We continue to find shares attractive given (1) accelerating growth from ’14-’16, (2) multiple sources of margin upside vs. consensus, and (3) the benefits of above-average financial leverage.”
The spin-off of Time Warner’s publishing group, Time Inc., will take place in the second quarter of 2014.
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Merck Muses Over “Sum of the Parts” Strategies
(MRK, $45.77, up $0.41 midday)
Merck & Co. Inc. is considering spinning off its animal health and consumer products divisions in order to unlock shareholder value, a Wall Street euphemism for “increasing the share price”. Generally speaking, large multi-national companies often find that their stock is worth more when they employ a “sum of the parts” strategy via spin-offs, as shareholders end up owning stock in two or three companies, rather than only the parent company.
Recent successful spin-offs include the Abbott Labs (ABT) spin-off of Abbvie Inc. (ABBV) and the News Corp. (NWSA) separation from 21st Century Fox (FOXA).
Wall Street expects Merck’s earnings per share to fall 9% this year, then climb 1% and 8% in 2014 & 15. The dividend yield is 3.76% and the PE is 13.1.
Merck’s stock is on a very slow multi-year uptrend, currently on a pullback to May 2013 support levels.
Not only is there no compelling reason to buy Merck shares, but I would consider selling as the stock approaches near-term resistance at $49, unless a stock spin-off is announced in the interim. At that point, I would re-examine the wisdom in holding MRK and waiting for the spin-off vs. selling MRK and reinvesting in a growth stock for capital gains.
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