Offshore

⁠Dimitry Nakhla | Babylon Capital®
RT @DimitryNakhla: $BKNG stock finally reached my $4,300 price target & bounced +4% 💸

While this is nice in the short-term, I’d much prefer $BKNG to trade in my accumulation range a bit longer so I can continue adding to the position

As I stated a couple months ago:

“I’d consider $BKNG a great purchase closer to $4300 (~18.50x multiple) roughly 7% below today’s share price or closer to 21x NTM estimates

This is where I can reasonably expect ~10.50% CAGR assuming a more conservative 20x 2027 earnings estimates, ensuring a substantial margin of safety & leaving room for potential multiple expansion”

A quality valuation analysis on $BKNG 🧘🏽‍♂️

•NTM P/E Ratio: 22.76x
•3-Year Mean: 20.52x

•NTM FCF Yield: 5.35%
•3-Year Mean: 5.17%

As you can see, $BKNG appears to be trading near fair value

Going forward, investors can receive ~10% LESS in earnings per share & ~3% MORE in FCF per share 🧠***

Before we get into valuation, let’s take a look at why $BKNG is a great business

BALANCE SHEET✅
•Cash & Short-Term Inv: $15.78B
•Long-Term Debt: $13.79B

$BKNG has a great balance sheet, an A- S&P Credit Rating, & 9x FFO Interest Coverage Ratio

RETURN ON CAPITAL✅
•2019: 33.3%
•2020: 2.7%
•2021: 14.2%
•2022: 29.1%
•2023: 47.3%
•LTM: 48.8%

$BKNG has strong ROIC, highlighting the financial efficiency of the business

REVENUES✅
•2014: $8.44B
•2024E: $23.43B
•CAGR: 10.74%

FREE CASH FLOW✅
•2014: $2.78B
•2024: $7.52B
•CAGR: 10.46%

NORMALIZED EPS✅
•2014: $53.31
•2024E: $182.76
•CAGR: 13.11%

SHARE BUYBACKS✅
•2014 Shares Outstanding: 53.02M
•LTM Shares Outstanding: 34.51M

By reducing its shares outstanding 35%, $BKNG increased its EPS by 54% (assuming 0 growth)

MARGINS✅
•LTM Gross Margins: 84.7%
•LTM Operating Margins: 28.7%
•LTM Net Income Margins: 21.8%

***NOW TO VALUATION 🧠

As stated above, investors can expect to receive ~10% LESS in EPS & ~3% MORE in FCF per share

Using Benjamin Graham’s 2G rule of thumb, $BKNG has to grow earnings at an 11.38% CAGR over the next several years to justify its valuation

Today, analysts anticipate 2025 - 2027 EPS growth over the next few years to be more than (11.38%) required growth rate:

2024E: $182.76 (20.1% YoY) *FY Dec

2025E: $208.88 (14.3% YoY)
2026E: $241.36 (15.6% YoY)
2027E: $282.17 (16.9% YoY)

$BKNG has a decent track record of meeting analyst estimates ~2 years out, but let’s assume $BKNG ends 2027 with $238.17 in EPS & see its CAGR potential assuming different multiples

23x P/E: $6489💵 … ~13.0% CAGR

22x P/E: $6207💵 … ~11.3% CAGR

21x P/E: $5925💵 … ~9.6% CAGR

20x P/E: $5643💵 … ~7.8% CAGR

19x P/E: $5361💵 … ~6.0% CAGR

As you can see, $BKNG appears to have attractive return potential if we assume >22x earnings, a valuation above allowing for slight multiple compression, yet one that’s below its 3-year mean

Additionally, $BKNG EPS growth rate ( >12%) more than justifies a >22x multiple

Today at $4620💵 $BKNG appears to be a decent consideration for investment & fairly valued

I’d consider $BKNG a great purchase closer to $4300 (~18.50x multiple) roughly 7% below today’s share price or closer to 21x NTM estimates

This is where I can reasonably expect ~10.50% CAGR assuming a more conservative 20x 2027 earnings estimates, ensuring a substantial margin of safety & leaving room for potential multiple expansion

#stocks #investing
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