What happened
Shares of Expedia (EXPE 0.58%) were pulling back last month as an analyst downgrade and increasing fears of a recession combined to push the stock lower.
According to data from S&P Global Market Intelligence, shares of the online travel agency finished December down 18%. As you can see from the chart, the stock fell over much of the month as the outlook for the discretionary travel sector soured in 2023.
So what
Expedia's worst day of the month came on Dec. 7, as shares fell 6% after one Wall Street analyst downgraded the stock. Wolfe Research's Deepak Mathivanan lowered his rating on the travel platform from peer perform to underperform as part of a broader downgrade of the travel sector to underweight.
Mathivanan believes that travel demand is likely to moderate in 2023 and sees consensus estimates in the sector as too high.
Alluding to Expedia, he said that some operators have entered less-profitable customer acquisition channels, and said Expedia "appears to be between a rock and a hard place from market share losses and margin compression during a downturn in 2023." The analyst gave Expedia a price target of $85.
The following week, D.A. Davidson analyst Tom White lowered his price target on Expedia from $122 to $108 but maintained a neutral rating on the stock. White cut his EBITDA estimates for Expedia by 1% in 2023, noting macroeconomic pressure building on the stock.
Finally, Expedia fell in the wake of the Fed's interest rate hike announcement and also as the central bank said it expected to raise rates by another 75 basis points in 2023 to rein in inflation and slow down the economy.
Travel stocks tend to be more sensitive to consumer spending, so Expedia and its peers moved lower on the news.
Now what
Expedia, which gets most of its business from hotel bookings, reported strong results in its most recent quarter as the company continues to benefit from the travel recovery. It actually had record quarterly revenue, up 22% to $3.6 billion, showing it's made a full recovery from the pandemic.
However, analysts seem to think the music is going to stop in the travel sector if a recession hits. That not may be true, though. Unemployment is still low, and consumers are eager to make up for opportunities missed during the pandemic.
If the economy avoids a deep recession, Expedia could outperform in 2023. In fact, the stock is up 7% to start the year as sentiment seems to be improving, and it looks cheap at 10 times forward earnings.
