Motley Fool Inside Value
TDS is one of the world's largest and most geographically diverse collections of travel brands -- from Galileo (which serves more than 44,000 travel agencies and 60,000 hotels) to online travel agencies like CheapTickets, ebookers, and Orbitz. The company tried to reassure investors that it was "facing specific, identifiable issues that mainly affect our international operations" and that TDS' earnings before interest, taxes, depreciation, and amortization (EBITDA) would be up 11% in 2006.
That does not include approximately $200 to $300 million (pre-tax) in non-cash impairment charges for the company's ebookers business -- an apparently unwise business deal that was valued at $404.3 million when it was announced in December 2004. At the time, Cendant was making acquisitions, like ebookers for Europe and Orbitz for the U.S., to capitalize on the online travel booking business. But ebookers apparently isn't yielding the sort of economic returns initially expected. The bad news continues into the next quarter, when earnings are expected to land between $0.18 and $0.20 a share, well below the $0.23 analysts were projecting.
Cendant's stock has performed poorly since its Oct. 24 announcement that it would split into four separate companies. The stock fell as much as 9% on the news, registering a new 52-week low at the time.
Cendant is currently trading at 15.4 times trailing earnings. Before the company split up, analysts expected it to grow earnings 13% annually for the next five years. That pricing looks reasonable, and the stock trades for 5.4 times enterprise value to EBITDA -- not an outrageous sum.
With Cendant's wealth of online travel businesses, it's hard to see why the market reacted so harshly to the ebookers news. In this observer's opinion, Wall Street has overreacted -- and created an excellent buying opportunity.
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