On Friday, Morgan Stanley (NYSE:MS) maintained its Overweight rating on Despegar.com (NYSE: NYSE:DESP) and increased the price target to $21.00 from $17.00. The adjustment follows the company's third-quarter performance and updated guidance for the year 2024.
According to InvestingPro data, DESP has shown remarkable momentum with an 87% year-to-date return, currently trading near its 52-week high of $19.00. Despegar's net revenue saw a year-over-year increase of 9%, aligning with Morgan Stanley's expectations.
The company has maintained impressive growth, with InvestingPro data showing a robust 16.7% revenue growth in the last twelve months and an outstanding gross profit margin of 71%. Additionally, the company's adjusted EBITDA for the quarter nearly doubled from the previous year and surpassed Morgan Stanley's estimates by 19%.
InvestingPro subscribers have access to 12 additional key insights about DESP's financial health and growth prospects through the comprehensive Pro Research Report.
Despegar's management has upheld its revenue guidance for fiscal year 2024, projecting over $760 million, while raising its adjusted EBITDA forecast to more than $170 million, up from the earlier guidance of over $160 million. Morgan Stanley's revenue estimate for 2024 remains unchanged at $762 million, slightly above the company's projected lower end. However, the 2025 revenue estimate has been reduced by 4% due to currency fluctuations and recent trends in gross bookings, including air capacity constraints in Mexico.
The revised estimates for 2024 reflect a 7% increase in the adjusted EBITDA forecast, with a projection of $173 million, marginally above the company's guidance and indicating a 22.7% margin. The 2025 adjusted EBITDA estimate has been raised by 9%.
Despite anticipating higher financial expenses, particularly from foreign exchange losses, Morgan Stanley has adjusted the 2024 net margin down by 0.8% to 7.5%. Conversely, the net margin for 2025 is expected to improve by 0.4% to 9.7% due to better operating results.
The increase in the price target to $21.00 is based on an updated discounted cash flow analysis and extends the valuation period to the end of 2025. The new target implies a 7.5 times multiple on the 2026 estimated enterprise value to EBITDA ratio, excluding factoring expenses, up from the previous 6.7 times.
Morgan Stanley's stance is supported by Despegar's earnings momentum and its current valuation, which is trading at approximately 6.4 times the 2026 estimated EV/EBITDA, below the pre-pandemic historical average of around 9 times. InvestingPro's Fair Value analysis suggests that DESP is currently undervalued, with analysts setting price targets ranging from $14 to $25, reflecting the market's optimistic outlook on the company's growth trajectory.
In other recent news, Despegar.com Corp., a prominent online travel agency in Latin America, has reported its third-quarter 2024 financial results. Despite a slight dip in gross bookings to $1.3 billion due to foreign exchange fluctuations, the company's adjusted EBITDA soared 94% to a record $48 million.
The adjusted net income also saw a significant boost of 309% to $36 million, with adjusted earnings per share reaching $0.34. Total (EPA:TTEF) revenues saw a 9% increase to $194 million, fueled by a strong performance in non-air segments and strategic B2B growth.
Among the recent developments, Despegar announced a 10-year lodging outsourcing agreement with Expedia (NASDAQ:EXPE), set to commence on January 1, 2025. The company also reported a substantial increase in the usage of its loyalty program and mobile app.
Despite facing foreign exchange headwinds, particularly in Brazil and Mexico, Despegar maintains a positive full-year revenue guidance and has raised its adjusted EBITDA forecast. The company's strategic B2B and Software (ETR:SOWGn) as a Service initiatives, along with evaluating acquisition opportunities in Latin America, are part of its long-term growth strategies.
Analysts highlight the company's resilience in the face of macroeconomic challenges and its commitment to enhancing customer experiences and capitalizing on new revenue streams. The strategic partnership with Expedia and the continued development of its AI travel assistant are expected to boost profitability starting from Q1 2025.
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