Can Ctrip Correct Its Nose-Dive?

On Tuesday, Bank of America (NYSE:BAC) upgraded several hotel names as the bank sees positive cash flows, dividend growth and stable balance sheets fueling returns.  In the wake of declining share prices, Bank of America upgraded Marriott International (NYSE:MAR) and Hyatt Hotels (NYSE:H) from Neutral to Buy.  Although shares of Marriott and Hyatt declined 25 percent and 17 percent last year, some investors may view other travel names as a bigger bargain.

Ctrip.com International (NASDAQ:CTRP) is the one-stop China travel service that specializes in discount hotel reservations, cheap airline tickets and package tours.  Although shares surged 257 percent and 12 percent in 2009 and 2010, shares fell 42 percent last year.  In comparison, the Shanghai Composite Index declined 22 percent last year. Other travel companies such as Priceline.com Inc. (NASDAQ:PCLN) and Expedia Inc. (NASDAQ:EXPE) gained 17 percent and 23 percent in 2011, respectively.

Don’t Miss: Eastman Kodak’s New Business: Suing for Dollars.

Ongoing global recession fears and marketing expense concerns are weighing on Ctrip.  The latest data shows that China’s exports and imports grew at their slowest pace in more than two years in December.  Li Wei, an economist in Shanghai said, “It’s not the end of the slowing down part of the story. That will probably last another quarter or four or five months before momentum recovers along with other emerging markets.”

Although the online segment made up only 11 percent of China’s travel industry in 2010,  consumers are relying more on internet travel companies than ever.  This growing trend is expected to attract more competition for Ctrip.  In order to keep up, Ctrip will likely increase advertising spending.  Barron’s explains, “Ctrip will spend just 7.2% of its 2012 revenues on advertising, well below recent ad-to-revenue ratios of 19.1% at Expedia and 17.6% at Priceline (where William Shatner, apparently, doesn’t come cheap). Stiffening price competition and the rising costs of snagging customers could hurt profit margins, which currently exceed an enviable 30% at Ctrip.  These well-understood pressures are hardly a surprise. Analysts have been slashing Ctrip’s earnings estimates and marking up its expenses, especially since the Shanghai company began matching a coupon promotion offered by its smaller rival eLong (NASDAQ:LONG).”

Although shares of Ctrip declined 42 percent last year, the decline could begin to attract bargain hunters that are patient enough to wait for a recovery.  Sentiment appears to be low in the stock as only five out of eight-teen analysts that cover the stock rate it as a Buy.  The company has zero long-term debt and currently trades at about 19 times earnings.

Don’t Miss: Cowen & Co.’s Matthew Hoffman Says Apple Expectations are Too High.

To contact the reporter on this story: Eric McWhinnie at staff.writers@wallstcheatsheet.com

To contact the editor responsible for this story: Damien Hoffman at editors@wallstcheatsheet.com