On Tuesday, CFRA maintained a Strong Buy rating on Trip.com Group Limited (NASDAQ: TCOM) and increased the price target to $80 from $66, following robust third-quarter earnings. The travel service provider reported a 47% year-over-year increase in earnings per ADS (EPADS), reaching CNY10.37, surpassing CFRA's estimates. Revenue climbed 16% year-over-year to CNY15.9 billion, with notable growth across various segments including accommodation reservation by 22%, transportation ticketing by 5%, and other revenue streams by 23%.
The analyst highlighted Trip.com's improved net margin, which rose by 9 percentage points year-over-year, attributing the gain to scale efficiency and higher other income. The recovery of both domestic and global travel industries, along with Trip.com's strategic expansion into lower-tier cities in China, enhanced partnership networks, and a strong brand, are expected to fuel revenue growth through 2024-2025.
Further, the company is anticipated to benefit from better operating leverage, thanks to AI-driven platform efficiencies, and a surge in higher-margin outbound sales. These factors are projected to contribute to net margin expansion in the next two years. Consequently, CFRA has revised its EPADS estimates upward for 2024 and 2025 to CNY28.00 and CNY30.00 respectively, from the previous forecasts of CNY23.44 and CNY26.95.
The new price target of $80 is underpinned by a 2025 P/E ratio of 19.0 times, which is deemed reasonable given the expected EPADS growth of 7% for 2025. This growth projection is modest compared to the peer average P/E ratio of 22.2 times based on an EPS growth rate of 19%.
In other recent news, Trip.com has been experiencing robust growth as demonstrated by its Q3 results and subsequent analyst upgrades. The company reported a notable 16% year-over-year increase in net revenue, reaching RMB 15.9 billion.
Further, Trip.com's adjusted EBITDA was at RMB 5.7 billion, showcasing a strong cash position with RMB 86.9 billion. Citi, TD Cowen, and Benchmark have shown confidence in Trip.com's performance, raising their respective stock price targets and maintaining a Buy rating. The adjustments follow the company's Q3 revenue report, which showed a 15.5% increase year-over-year, primarily due to robust advertising revenue.
InvestingPro Insights
Trip.com Group Limited's strong performance, as highlighted in the article, is further supported by recent InvestingPro data. The company's revenue growth of 50.61% over the last twelve months aligns with the robust earnings reported in Q3. Additionally, Trip.com's impressive gross profit margin of 81.48% underscores its operational efficiency, which is consistent with the improved net margin mentioned in the analyst's report.
InvestingPro Tips reveal that Trip.com holds more cash than debt on its balance sheet, indicating financial stability that could support its expansion plans into lower-tier Chinese cities. The company's strong return over the last three months, with a 42.9% price total return, reflects investor confidence in its growth strategy and market position.
For readers seeking a deeper dive into Trip.com's financials and future prospects, InvestingPro offers 10 additional tips, providing a comprehensive view of the company's investment potential.
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