Offshore

⁠Dimitry Nakhla | Babylon Capital®
3 months ago I stated:

“Today at $3,618.86💵 $BKNG appears to be a decent consideration for investment”

Since then, $BKNG shares rallied +44% ✅

As I suggested in the post attached below👇🏽

“As you can see, $BKNG appears to have attractive return potential if we assume >19x earnings, a valuation below both its current & 3-year mean (allowing for slight multiple compression, an added layer of a margin of safety)

Also, $BKNG EPS growth rate ( >10%) more than justifies a >20x multiple”

$BKNG has plenty room for margin expansion💰
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While a rapid appreciation in share price can be gratifying, it's often counterintuitive for long-term investors

Ideally, I prefer to see these high-quality businesses trade at attractive valuations for an extended period, allowing for the accumulation of shares at a more favorable price

This enables us to build a larger position in a company we believe in, ultimately increasing our potential for long-term returns
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#stocks #investing"

A sober valuation analysis on $BKNG 🧘🏽‍♂️

•NTM P/E Ratio: 19.75x
•3-Year Mean: 21.24x

•NTM FCF Yield: 5.63%
•3-Year Mean: 4.79%

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

Going forward, investors can receive ~7% MORE in earnings per share & ~17% 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: $16.33B
•Long-Term Debt: $13.36B

$BKNG has a great balance sheet, an A- S&P Credit Rating, & 8.41x FFO Interest Coverage Ratio

RETURN ON CAPITAL✅
•2019: 33.3%
•2020: 2.7%
•2021: 14.2%
•2022: 29.1%
•2023: 47.3%
•LTM: 48.4%

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

REVENUES✅
•2013: $6.79B
•2023: $21.37B
•CAGR: 12.14%

FREE CASH FLOW✅
•2013: $2.22B
•2023: $7.00B
•CAGR: 12.16%

NORMALIZED EPS✅
•2013: $41.72
•2023: $152.22
•CAGR: 13.81%

SHARE BUYBACKS✅
•2013 Shares Outstanding: 52.41M
•LTM Shares Outstanding: 35.04M

By reducing its shares outstanding 33%, $BKNG increased its EPS by 50% (assuming 0 growth)

MARGINS✅
•LTM Gross Margins: 97.8%
•LTM Operating Margins: 66.9%
•LTM Net Income Margins: 53.9%

***NOW TO VALUATION 🧠

As stated above, investors can expect to receive ~7% MORE in EPS & ~17% MORE in FCF per share

Using Benjamin Graham’s 2G rule of thumb, $BKNG has to grow earnings at a 9.88% CAGR over the next several years to justify its valuation

Today, analysts anticipate 2024 - 2026 EPS growth over the next few years to be just more than (9.88%) required growth rate:

2024E: $175.64 (15.4% YoY) *FY Dec
2025E: $201.51 (14.7% YoY)
2026E: $236.96 (17.6% YoY)

$BKNG has a decent track record of meeting analyst estimates ~2 years out, so let’s assume $BKNG ends 2026 with $236.96 in EPS & see its CAGR potential assuming different multiples

21x P/E: $4,976.16💵 … ~15.5% CAGR

20x P/E: $4,739.20💵 … ~13.1% CAGR

19x P/E: $4,502.24💵 … ~10.7% CAGR

18x P/E: $4,265.28💵 … ~8.2% CAGR

17x P/E: $4,028.32💵 … ~5.6% CAGR

As you can see, $BKNG appears to have attractive return potential if we assume >19x earnings, a valuation below both its current & 3-year mean (allowing for slight multiple compression, an added layer of a margin of safety)

Also, $BKNG EPS growth rate ( >10%) more than justifies a >20x multiple

Today at $3,618.86💵 $BKNG appears to be a decent consideration for investment

I’d consider $BKNG a great purchase closer to $3,400 (~18.50x multiple) roughly 6% below today’s share price or at $3,400.00💵

This is where I can reasonably expect ~11% CAGR assuming a conservative 18x 2026 earnings estimates, a large margin of safety

#stocks #investing
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