Miller Value Partners: “Expedia (EXPE) is Worth More Than Double the Current Price”

Investment management company Miller Value Partners recently released its Q2, 2022 investment letter, a copy of which can be downloaded here. The firm faced notable challenges due to continued volatility in the last couple of years. In the second quarter, Miller Opportunity fund was down by -29.3%, extending its first half return to -31.08% net of fees. Over the last 10 years, the fund generated an annualized return of 11.83%. Take a look at the fund’s top 5 holdings to have an idea about their best picks for 2022.

In the Q2 2022 investment letter, the firm analyzed and explained the reasons for the underperformance of the fund. The letter talks about Expedia Group, Inc. (NASDAQ:EXPE), its a new addition in this quarter. As per the letter, Expedia Group, Inc. (NASDAQ:EXPE) has fallen 50% YTD. Expedia Group, Inc. (NASDAQ:EXPE) is an international online travel company headquartered in Seattle, Washington, and has a market capitalization of $16.3 billion. Its operations are through Retail, B2B, and trivago segments. Stock of Expedia Group, Inc. (NASDAQ:EXPE) closed at $103.76 per share on July 27, 2022. Expedia Group, Inc. (NASDAQ:EXPE) had an  8.11% return for the past month while its 12-month return dropped to -36.42%.

Here is what Miller Value Partners specifically said about Expedia Group, Inc. (NASDAQ:EXPE) in its Q2 2022 investor’s letter:

“We bought Expedia (NASDAQ:EXPE) in the quarter. It’s fallen 50% year-to-date despite expectations for record EBITDA this year. Expedia made significant improvements to both its cost structure and its technology infrastructure during the pandemic. This year Expedia’s EBITDA margins (21%) are expected to surpass 2019’s (16%) by more than 30%.

It’s also gushing free cash flow. EXPE should generate ~$16/share this year, which is a ~18% yield on the current $91 stock price. Most of this year’s free cash flow stems from working capital, but the prospects for operating free cash flow are also strong. Consensus has Expedia earning ~$11/share next year, a 12% yield. Add in working capital benefits and it should generate more than ~$18/share (20% yield). Barry Diller, who has one of the strongest capital allocation track records around, chairs the Board and recently exercised some options. We expect the company to reach its deleveraging targets later this year, then to deploy its cash flow in value accretive ways, such as share repurchase.

In March 2020, Expedia bottomed at 6.4x 2019 EV/EBITDA. There could hardly be a more dire business outlook than what it faced then. A similar multiple on current year EBITDA would equate to $78, 12% downside, which demonstrates the dire outlook already priced in. We believe the stock is worth more than double the current price, an attractive risk-reward skew. It’s unusual to find a company with a 10-20% free cash flow yield that can sustainably grow topline high-single digits, as we believe Expedia can do.”

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Expedia Group, Inc. (NASDAQ:EXPE) ranked 29^th on our list of 30 Most Popular Stocks Among Hedge Funds. At the end of the first quarter, Expedia Group, Inc. (NASDAQ:EXPE) was in 88 hedge fund portfolios up from 81 in Q4, 2021. Expedia Group, Inc. (NASDAQ:EXPE)  shares lost 40.31% of their value over the last 52 weeks.

We published another article in May in which another hedge fund shared its insights on what makes Expedia Group, Inc. (NASDAQ:EXPE) a smart investment. If you want to read more investor letters from hedge funds and other leading investors, check out our hedge fund investor letters Q2 2022 page.

Disclosure: None. This article is originally published at Insider Monkey.