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On Wednesday, Citi updated its outlook on Trip.com Group Limited (NASDAQ:TCOM), raising the price target to $72 from the previous $66 while maintaining a Buy rating on the stock. The adjustment comes ahead of the company's anticipated third-quarter 2024 earnings report, which is expected to be released around mid to late November.
Citi predicts that Trip.com's revenue and adjusted earnings will align with the consensus, but it does not dismiss the possibility of further upside potential. This optimism is attributed to resilient travel demand within China and effective cost control in research and development, as well as administrative expenses.
The firm anticipates Trip.com's revenue growth to pick up pace in the fourth quarter of 2024, projecting a 17% increase from an estimated 13.5% in the third quarter. This forecast is based on expectations of a reduced year-over-year decline in hotel Average Daily Rates (ADR) following the Golden Week holiday and normalized comparisons for transportation take rates.
Citi has also revised its earnings estimates for Trip.com for the years 2025 and 2026, increasing them by 1% each. This revision reflects the sustained demand for both domestic and international travel. The new price target of $72 is derived from a Sum of the Parts (SOTP) valuation method.
The investment firm's confidence in Trip.com is supported by the company's dominant position in China's travel industry and its continuous market share gains. Citi views the anticipated narrowing of the year-over-year decline in hotel ADRs as a potential catalyst for the stock.
In other recent news, China has imposed property freezes on nine American firms, including Sierra Nevada Corporation and Stick Rudder Enterprises LLC, in response to U.S. weapons sales to Taiwan. Other affected firms include NYSE:CUB Corporation, S3 Aerospace, TCOM Ltd Partnership, TextOre, Planate Management Group, ACT1 Federal, and Exovera. This move aims to pressure the United States to cease arms dealings with Taiwan.
In the travel sector, Trip.com Group Limited has been the subject of several analyst notes. TD Cowen has adjusted the company's price target, while Benchmark has maintained its Buy rating despite market concerns. Jefferies has increased its stock price target for Trip.com, reflecting confidence in the company's strong summer growth. Mizuho Securities has reiterated its Outperform rating on Trip.com shares, highlighting the company's improving profitability.
Trip.com's second-quarter revenue report showed a year-over-year increase of 14%, with non-GAAP operating income (NGOI) seeing a positive uptick of 22%. The company also announced a strategic partnership with Prioticket, expected to enhance its offerings by integrating Prioticket's API.
InvestingPro Insights
Trip.com Group Limited's recent performance and financial metrics align well with Citi's optimistic outlook. According to InvestingPro data, the company has shown impressive revenue growth of 50.61% over the last twelve months as of Q2 2024, reflecting the resilient travel demand noted by Citi. The company's strong gross profit margin of 81.48% also supports Citi's observation of effective cost control.
InvestingPro Tips highlight that Trip.com is trading at a low P/E ratio relative to near-term earnings growth, with a PEG ratio of just 0.17. This suggests the stock may be undervalued considering its growth prospects, which aligns with Citi's increased price target. Additionally, the tip that 10 analysts have revised their earnings upwards for the upcoming period corroborates Citi's positive earnings outlook.
It's worth noting that Trip.com has demonstrated strong returns, with a 84.62% price total return over the past year and a 70.73% return year-to-date. These figures support Citi's Buy rating and indicate investor confidence in the company's performance.
For readers interested in a deeper analysis, InvestingPro offers 14 additional tips for Trip.com Group Limited, providing a comprehensive view of the company's financial health and market position.
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