NEW YORK (TheStreet) - Orbitz Worldwide (OWW) shares continued to decline on Wednesday following American Airlines (AAL) decision on Tuesday to withdraw it fares from being listed on Orbitz's Web portal. American Airlines also intends to withdraw U.S. Airway fares on September 1, it said. Corporate clients who use Orbitz for business travel will not be affected.
"We have worked tirelessly with Orbitz to reach a deal with the economics that allow us to keep costs low and compete with low-cost carriers," said Scott Kirby, President of American Airlines, in a press release. "While our fares are no longer on Orbitz, there are a multitude of other options available for our customers, including brick and mortar agencies, online travel agencies, and our own websites."
Shares of Orbitz were lower in Wednesday trading, off 0.60% to $7.99.
Orbitz said in a statement that: "Our sites offer hundreds of airlines which are eager to capture the revenue American is choosing to forego and we will continue to show our customers a broad range of flight options to thousands of destinations in the U.S. and worldwide. Orbitz for Business is not impacted."
Here's what Wall Street analysts are saying about Orbitz on Wednesday:
Naved Khan, Cantor Fitzgerald (Hold; $10 PT)
While American Airlines' decision to withdraw fares from Orbitz is no doubt a negative for the company and the stock, we estimate that the impact on both the top and bottom lines is likely to be limited. OWW's reliance on the Air segment for revenue has diminished since the last dispute with AAL (2010-2011), partially offsetting the increased exposure to AAL resulting from the acquisition of US Airways. We opt to remain on sidelines given a) lack of visibility into the timing/terms of a resolution with AAL and b) potential downside risk to FY:14 outlook from this issue.
Manish Hemrajani, Oppenheimer (Market Perform)
OWW shares were down ~5% yesterday after American Airlines announced the withdrawal of its fares from Orbitz after the companies failed to reach a commercial agreement, alluding to a similar dispute between the two in 2010. Fares for US Airways will be withdrawn on Sept. 1; however, American/US Airways tickets will continue to be available to business customers through Orbitz for Business. We view this as a negative for Orbitz, which generates meaningful revenue from US airline ticket sales (Air 27% of revenue) as compared to other US OTAs [online travel agencies]. We believe the dispute could make other OTA peers uncomfortable, but in the near term, potential beneficiaries of the dispute would be airline suppliers, and, to a lesser extent, Expedia.
Eric Sheridan, UBS (Buy; $11 PT)
We note a few key differences vs. the last time OWW faced such a dispute with American (Dec. '10 - Jun '11): a) American had not merged with US Airways (thus, larger now); b) fares were pulled from both consumer & business sites (vs. just consumer this time); & c) air represented a larger portion of OWW total bookings (standalone air bookings were ~74% of total in 2010 vs. 63% 2014E). We note that at the time, OWW management had stated they were able to recapture ~half of AA ticket volumes by shifting business to other airlines. We expect a resolution over the coming months, resulting in minimal full year revenue impact.
Jake Fuller, FBR Capital Markets (Market Perform, $9)
American Airlines and US Air are dropping off OWW. While we estimate that the carrier may account for as much as 5-6% of OWW annual revenue, we expect any hit to be much smaller. Why? 1) The carrier is still on the OWW corporate platform and was not in the 2011 fight, 2) In the last scuffle, OWW said it was able to shift about half of American demand to other carriers, 3) We would not expect this issue to extend for a full year. The stock was off 5% yesterday, but the actual EBITDA risk here is likely only ~ $1M if we assume the fight extends for a period of 3 months.
"We rate ORBITZ WORLDWIDE INC (OWW) a HOLD. The primary factors that have impacted our rating are mixed ? some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its revenue growth, notable return on equity and compelling growth in net income. However, as a counter to these strengths, we find that the company has favored debt over equity in the management of its balance sheet."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- OWW's revenue growth has slightly outpaced the industry average of 7.5%. Since the same quarter one year prior, revenues slightly increased by 9.8%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
- The company's current return on equity greatly increased when compared to its ROE from the same quarter one year prior. This is a signal of significant strength within the corporation. Compared to other companies in the Internet & Catalog Retail industry and the overall market, ORBITZ WORLDWIDE INC's return on equity significantly exceeds that of both the industry average and the S&P 500.
- The gross profit margin for ORBITZ WORLDWIDE INC is currently very high, coming in at 80.80%. Regardless of OWW's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, the net profit margin of 2.77% trails the industry average.
- This stock's share value has moved by only 9.97% over the past year. The fact that the stock is now selling for less than others in its industry in relation to its current earnings is not reason enough to justify a buy rating at this time.
- The debt-to-equity ratio is very high at 13.21 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company. To add to this, OWW has a quick ratio of 0.53, this demonstrates the lack of ability of the company to cover short-term liquidity needs.
- You can view the full analysis from the report here: OWW Ratings Report
--Written by Laurie Kulikowski in New York.