On Friday, Morgan Stanley reiterated its Overweight rating on Trip.com Group Limited (NASDAQ:TCOM) with a steady price target of $64.00. The firm’s stance comes amid expectations of a share price increase over the next 60 days due to what is seen as a more compelling short-term valuation following a recent decline. Trip.com’s stock experienced a correction of more than 10% after first-quarter 2024 results, a pattern similar to the post-fourth-quarter 2023 results period, where it also saw a significant drop.

The analyst pointed to the Dragon Boat Festival, scheduled for June 8-10, and the upcoming summer holiday season as potential catalysts for the stock. Despite a slowdown in year-over-year growth for Trip.com’s domestic business in the second quarter of 2024, attributed mainly to weaker hotel pricing and a one-time adjustment in air revenue and ticket sales from late third-quarter 2023, expectations are set for a normalization by the fourth quarter of 2024. This normalization is anticipated to lead to a growth acceleration in the fourth quarter, potentially reaching double digits in a bull case scenario, which could instill market confidence in the company’s prospects for 2025.

The analysis also forecasts a shift in outbound travel patterns, with a higher mix of long-haul travel in the third quarter of 2024, which typically commands higher pricing for air travel and hotel stays. This shift is likely driven by the summer travel season. The valuation of Trip.com is deemed attractive at 15 times the estimated 2024 earnings and 12 times the estimated 2025 earnings, with profit growth of 28% and 21% for 2024 and 2025, respectively. These earnings projections correspond to price-to-earnings growth (PEG) ratios of 0.5x for 2024 and 0.6x for 2025.

Morgan Stanley’s analysis includes a subjective estimation of probabilities, indicating an 80% or higher likelihood—or “highly likely” probability—that the scenario of share price increase will occur. These probabilities serve as an illustrative guide based on the firm’s assessment of the various potential outcomes for Trip.com’s stock performance in the near term.

InvestingPro Insights

Reflecting on Morgan Stanley’s positive outlook on Trip.com Group Limited (NASDAQ:TCOM), InvestingPro data further substantiates the potential for the company’s stock performance. With a robust market capitalization of $33.6 billion and an impressive gross profit margin of 81.53% for the last twelve months as of Q1 2024, Trip.com’s financial health appears strong. The company’s revenue growth of 87.91% over the same period demonstrates a significant expansion, which is expected to continue with the normalization of travel patterns post-pandemic.

InvestingPro Tips highlight that Trip.com holds more cash than debt on its balance sheet and has a history of raising its dividend for 4 consecutive years, signaling a commitment to shareholder returns. Additionally, the stock is trading at a low P/E ratio relative to near-term earnings growth, with a P/E ratio of 24.43 and an adjusted P/E ratio of 21.2. These metrics suggest that the stock may indeed be undervalued, as Morgan Stanley has indicated. With 7 analysts having revised their earnings upwards for the upcoming period, the sentiment around Trip.com’s financial future is optimistic.

For readers looking to delve deeper into Trip.com’s financials and future prospects, there are over 10 additional InvestingPro Tips available at https://www.investing.com/pro/TCOM. For those considering a subscription, use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription.

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