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On Wednesday, Bernstein analysts maintained a positive stance on Trip.com Group Limited (NASDAQ:TCOM) stock, reiterating an Outperform rating and a $75.00 price target. The firm's analysis aligns with InvestingPro data, which indicates Trip.com is currently undervalued, trading at roughly 13 times forward price-to-earnings. With a PEG ratio of just 0.22 and an impressive financial health score rated as "GREAT" by InvestingPro, the stock appears attractive even with conservative earnings forecasts. Bernstein's analyst Boris Van highlighted Trip.com as their top pick in the sector, noting that the stock appears to be factoring in significant forecast revisions due to potential macroeconomic pressures.
The analyst pointed out that a macroeconomic hit would likely lead to more downtrading rather than a reduction in travel, with domestic travel expected to rise and help offset the decline in outbound and international travel. This resilience is reflected in Trip.com's strong revenue growth of 19.73% over the last twelve months, with an industry-leading gross margin of 81.25%. In the event of a 1% GDP hit, Bernstein's model predicts a 5% reduction in outbound travel and a 2% decrease in hotel growth due to downtrading. This would result in overall growth for the fiscal year dropping from 16% to 14%.
Despite the potential challenges, the firm anticipates that hotel growth could experience some weakness through outbound travel volumes that convert to domestic travel, thereby offsetting some of the impact. They estimate approximately a 1.5% reduction in revenue for Trip.com based on these factors.
Bernstein also commented on other companies in the sector, noting that Tencent (HK:0700) Music Entertainment (TME) is seen as a stable earner with a fair valuation for its earnings per share profile. However, Baidu (NASDAQ:BIDU) is believed to have the most exposure to macro risks, which could further impede its artificial intelligence monetization strategy.
Trip.com, with its focus on travel and tourism, is expected to navigate through macroeconomic challenges by leveraging the anticipated increase in domestic travel, which could serve as a buffer against the softer international travel market. Despite a recent 17.88% decline over the past week, the reaffirmed Outperform rating and $75.00 price target reflect Bernstein's confidence in Trip.com's ability to manage these industry dynamics. For deeper insights into Trip.com's valuation and growth prospects, including 12 additional ProTips and comprehensive financial metrics, visit InvestingPro.
In other recent news, Trip.com Group Limited reported a substantial increase in earnings per ADS, growing 72% year-over-year to CNY26.20, alongside a 15% rise in revenue to CNY53.3 billion. This growth was largely driven by a 25% increase in accommodation reservations and a 10% rise in transportation ticketing. Despite these positive figures, CFRA downgraded Trip.com's stock rating from Strong Buy to Hold, lowering its price target from $80 to $60, citing a potential normalization of earnings momentum. Meanwhile, Jefferies maintained a Buy rating for Trip.com with a price target of $77, highlighting the company's strategic use of artificial intelligence and expansion in travel services as key growth drivers.
Benchmark also reiterated its Buy rating with an $80 price target, noting robust domestic travel demand but also a contraction in operating profit margin due to international expansion efforts. TD Cowen adjusted its price target to $67 while retaining a Buy recommendation, acknowledging Trip.com's strong fourth-quarter performance, which exceeded revenue expectations with a 23% year-over-year increase. Concerns remain about China's macroeconomic conditions and the company's ability to return cash reserves to shareholders, which could impact future valuations. However, analysts highlight the company's strategic focus on expanding its market share, particularly in the Asia-Pacific region, as a positive sign for future growth.
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