"Another Big Beat Expected: Feedback suggests 4Q buyside expectations are well above consensus adj. EPS of $1.68 (+31% y/y) vs. $1.52-1.62 guide. While this view appears reasonable, overperformance across key metrics, above-consensus 1Q guide and favorable fwd-looking commentary also likely required to satisfy elevated momentum-driven expectations.
Favorable Fundamental Update Anticipated: While outlook commentary likely to reflect warranted optimism on cont’d strong secular/share capturedriven growth, enthusiasm likely somewhat tempered by uncertainty regarding multiple puts/takes including pace of unit volume deceleration, timing/magnitude of ADR improvement as an offset and sustainability of peak 55% 2009E EBITDA flow through (incremental EBITDA as a % of GP).
Fine Tuning Estimates: Lifting 2009E adj. EPS from $8.30 to $8.38 on strong 4Q finish and 2010E EPS from $10.00 to $10.36 (roughly in line with Street consensus but seemingly still well below buyside expectations) on
higher int’l growth driven by faster ADR recovery partially offset by stronger US$ (€€ /USD of 1.36 and ₤/USD of 1.56 vs. 1.44 and 1.62 prior).
Compelling Multi-Year Growth Story Intact: Strong secular tailwinds remain firmly in place and the rationale to own the stock remains sustainable strong growth driven by deployment of proven potent agency distribution model against an attractive $300b global lodging market opp’y.Content to Wait for an Entry Point: The space’s dynamic nature and inherent puts and takes in the business model have historically combined to create elevated volatility and material misperception opportunities.
TP Unchanged: Our $210 TP still consistent with estimated yr-fwd value range of $206-219 that assumes 9-10x 2010 domestic EBITDA and 14-16x int’l EBITDA (represents low end of precedent private market transactions)."
Noted a few put sellers today in small blocks at $200 strike. Technically, the stock put a nice double bottom around $194. A break below that could take the stock quickly to fill the previous gap which is all the way down to $180. But I don't see that happening.
On the upside, the stock is likely to find some resistance at previous 52-week high of $231. I am bullish on the stock and want to play directionally to the upside with the following calendar spread:- Buy to open March $230 calls
- Sell to open Feb $230 calls
The implied volatility in Feb is sharply elevated at 95 vs. 46 in March. The calendar spread is going for $2.50 as of this writing. This is a bit risky as I am looking for a retest of $230 after earnings which is 20% away. A less risky trade would be to use $220 calendar currently going for $3.30.
Good luck!
