Stock Picks: EXPE Up; SYMC Down

Despite earnings getting crimped by foreign currency shifts, investors in online travel company Expedia (EXPE) sent the stock off on a bon voyage Thursday, pushing shares up 12% in early trading.

The Seattle-area company reported second-quarter net income of 14 cents a share, down from 33 cents a share in the year-ago quarter. Excluding foreign currency losses and acquisition costs, earnings came in at 38 cents a share, or seven cents better than Wall Street's average estimate. Quarterly revenue of $769.8 million handily beat Street projections of $732 million.

Expedia suffered cross currents in the quarter, as lower prices spurred increased volume in some segments, while tough economic times inhibited travel spending, particularly in the U.S. World-wide air revenue decreased 20% for the second quarter, as revenue per ticket dropped 29%, though that was partially offset by a 13% increase in ticket volume.

"Notwithstanding the broader issues of the world economy, Expedia is proving it can manage in any environment," Chief Executive Barry Diller said in a statement.

Kaufman Brothers analyst Aaron Kessler wrote Wednesday that the earnings pop came more from promotional moves, such as cutting booking fees, which Expedia did June 27, than from major rebounds in travel.

"While we believe the travel environment is stabilizing in the U.S. and Europe, we don't see any signs of a re-acceleration," Kessler wrote.

At least part of the Thursday price pop comes from a likely short squeeze. As of July 24, about 12.6% of Expedia's shares were held short, meaning investors had borrowed them with the expectation they would go down. The company's results, in which is sustained consistent customer levels by dropping booking fees -- likely forced some unwinding of short positions.

Going forward, Benchmark Company analyst Frederick Moran believes the breadth of the Expedia brand will help the company get through the slump.

"The Expedia brand is one of the most well-known and valuable brands in the travel industry," he wrote in a Tuesday note ahead of the earnings report. "Expedia will likely continue to expand internationally, mainly hotel bookings, which should offer the best avenue for growth and profitability. Expedia’s dependence on the U.S. travel market, and lower-margin air ticket sales in particular, may inhibit profit growth in the near term due to the recession-led global travel slump."

Bottom Line: Sell
It’s a good time to take profits on a stock that's climbed 37% in the last month.

Symantec (SYMC) missed Wall Street's fiscal first-quarter earnings estimate by a penny a share and said sales of new software licenses were taking a back seat to austerity measures spawned by tough economic times. Shares of the Cupertino, Calif.-based company dropped 11% in late-morning trading.

President and CEO Enrique Salem said in a Wednesday evening conference call that although information technology spending should pick up by December, the near-term picture is tough.

"As customers focus on purchasing fewer new licenses, this has put pressure on our ability to hold margins steady during the June quarter and has impacted our view of operating margins for the remainder of the fiscal year," Salem said.

Symantec cut its fiscal second-quarter sales projections to $1.4 billion to $1.45 billion, less than the $1.5 billion Street estimate. Earnings will range from 32 cents to 34 cents a share, below the average estimate of 36 cents.

Ladenburg Thalmann analyst Aaron Schwartz on Thursday cut his rating on the stock to Neutral from Buy.

"Our thesis -- which had centered on a better than expected margin picture this year -- is probably now off the table making it more difficult for us to recommend the stock," Schwartz wrote.

Technology Business Research analyst Allan Krans said Thursday that Symantec has most of the component parts for success, but is having trouble tying them together.

"Through its 30-plus acquisitions over the past 10 years, Symantec compiled a broad portfolio of products that generate sizable revenue streams, but along the way became a fractured company," he wrote. "Particularly over the past three years, Symantec’s expansion in systems management created some confusion among its customer base and partner network around exactly around the strategic direction of the company."

Shaul Eyal, at Oppenheimer & Co., said at least some of its business segments will provide a measure of stability despite tough economic times.

"While we believe security and storage in that order continue to be resilient in this IT spending environment, even these are not entirely immune to budget cuts," he wrote.

Bottom Line: Hold
Selling shares now will do more harm than waiting, as indications of even a mild economic recovery will translate into an increase in IT spending.