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Expedia Inc. Annual Stock Valuation – 2014 $EXPE

220px-Expedia_Inc_LogoBenjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 5 Undervalued Companies for the Defensive Investor Near 52 Week Lows – September 2014.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a specific look at how Expedia Inc. (EXPE) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Expedia, Inc. (Expedia), is an online travel company. Travel suppliers distribute and market products through its sites, its private label business and its call centers. Its portfolio of brands includes Expedia.com, a service online travel agency ; Hotels.com, a hotel-only booking service; Hotwire.com, a discount travel provider; Expedia Affiliate Network (EAN), which powers travel for travel and non-travel brands, as well as more than 10,000 active affiliates globally; luxury travel specialist, Classic Vacations; destination services and concierge services provider Expedia Local Expert (ELE); Expedia CruiseShipCenters, with home-based agents and retail locations in the United States and Canada; Egencia, the corporate travel management company; eLong, Inc. (eLong), China’s online travel company, and European online hotel specialist Venere.com. Effective July 5, 2014, Expedia Inc acquired a 19.9% interest in Wotif.com Holdings Ltd. In July 2014, Expedia Inc acquired Auto Escape Group.
EXPE Chart

EXPE data by YCharts

Defensive Investor – must pass at least 6 of the following 7 tests: Score = 2/7

  1. Adequate Size of Enterprise – market capitalization of at least $2 billion - PASS
  2. Sufficiently Strong Financial Condition – current ratio greater than 2 - FAIL
  3. Earnings Stability – positive earnings per share for at least 10 straight years - FAIL
  4. Dividend Record – has paid a dividend for at least 10 straight years - FAIL
  5. Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period - PASS
  6. Moderate PEmg ratio – PEmg is less than 20 - FAIL
  7. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 - FAIL

Enterprising Investor – must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 3/5

  1. Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 - FAIL
  2. Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 - FAIL
  3. Earnings Stability – positive earnings per share for at least 5 years – PASS
  4. Dividend Record – currently pays a dividend – PASS
  5. Earnings growth – EPSmg greater than 5 years ago - PASS

Valuation Summary

Key Data:

Recent Price $83.79
MG Value $95.40
MG Opinion Fairly Valued
Value Based on 3% Growth $35.93
Value Based on 0% Growth $21.06
Market Implied Growth Rate 12.66%
Net Current Asset Value (NCAV) -$29.21
PEmg 33.81
Current Ratio 0.75
PB Ratio 5.69

Balance Sheet – 6/30/2014

Current Assets $3,641,000,000
Current Liabilities $4,857,900,000
Total Debt $1,249,400,000
Total Assets $9,234,800,000
Intangible Assets $4,783,900,000
Total Liabilities $7,359,200,000
Outstanding Shares 127,300,000

Earnings Per Share

2014 (estimate) $3.28
2013 $1.67
2012 $2.16
2011 $2.34
2010 $2.93
2009 $2.05
2008 -$17.60
2007 $1.88
2006 $1.39
2005 $1.31

Earnings Per Share – ModernGraham

2014 (estimate) $2.48
2013 $2.13
2012 $1.03
2011 -$0.25
2010 -$1.65
2009 -$3.36

Dividend History
EXPE Dividend Chart

EXPE Dividend data by YCharts

Conclusion:

Expedia does not qualify for either the Defensive Investor or the Enterprising Investor.  The Defensive Investor is concerned with the company’s low current ratio, lack of earnings stability or growth over the last ten years, short dividend history, and high PEmg and PB ratios.  The Enterprising Investor is concerned by the company’s high level of debt relative to its current assets.  As a result, value investors following the ModernGraham approach based on Benjamin Graham’s methods should explore other opportunities.  From a valuation side of things, the company appears to be fairly valued after growing its EPSmg (normalized earnings) from a loss of $1.65 in 2010 to an estimated gain of $2.48 for 2014.  This level of demonstrated growth supports the market’s implied estimate of 12.66% earnings growth and leads the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value within a margin of safety relative to the price.

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on Expedia Inc. (EXPE)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Disclaimer:  The author did not hold a position in Expedia Inc. (EXPE) or in any other company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  Logo taken from Wikipedia for the sole purpose of identifying the company; this article is not affiliated with the company in any manner.

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