You Can Bank on Priceline's Guidance

 | Aug 11, 2014 | 11:49 AM EDT  | Comments
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When will people learn? When will people recognize that some companies do things differently when it comes to reporting earnings?

Some like to be conservative. Some like to do what's known as sandbagging, or underpromising so they can overdeliver later on. It's time-honored. You can set your earnings clock to it.

Take Priceline (PCLN), one of my absolute favorite companies, a company that has successfully harnessed the Web to save people money on pretty much everything involving traveling, staying at hotels and even dining out. Priceline is integral to what I call the new frugal consumer, who wants to bargain hunt for pretty much everything involving a vacation. As I wrote in "Get Rich Carefully," "Wall Street analysts, perhaps because they are often rich, and, yes, snobs, have continually misunderstood and underestimated this terrific company which has become the de facto way to travel for tens of millions of people around the globe."

Nevertheless, almost every time that Priceline reports, it does two things: first it blows away the revenues and the earnings, giving you a dazzling set of numbers and second, it offers conservative guidance that is so restrained that it amounts to a forecast cut vs. the expectations of analysts who don't really understand it anyway.

Next thing you know the stock has dropped huge in before-hours trading, the same pattern as last time except that this time the company reported before the open.

I was on "Squawk Box" doing what's known as the tease for "Squawk on the Street" and the stock was down about $20. I couldn't believe it was happening again. As I said on Friday's "Mad Money" gameplan, "We hear from Priceline on Monday morning and I'm going to let you in on a trick of the trade. Almost every single time Priceline reports the shoot-first-ask-questions-later gang blows it out in part because the company often gives guidance that's below Wall Street's expectations. So the headline reads 'Priceline cuts forecast.' However, when the smoke clears and the stock's down appreciably, that's when you get your chance to buy."

Bingo. It happened again. You caught a 60-point swing from when the release with the so-called trimmed forecast came out and 80 minutes later when the company, on its conference call, indicated that the business is incredibly robust and growing by leaps and bounds. The forecast simply reflected the non-promotional nature of the company. 

It is important for you to file away the list of companies that have historically liked to give very conservative guidance. I have always felt that Apple (AAPL) tried to set reasonable expectations that are often at odds with analysts sporting wild, high estimates. That's caused many a downdraft, all of which have, in the end, proven to be buyable. CBS (CBS) last week offered conservative guidance and the stock sunk immediately, even as the conference call was all about the long runway the company has in front of it.

One of the most glaring patterns of conservatism is the one being set by Alex Gorsky, CEO of Johnson & Johnson (JNJ). The stock is still reeling from what seemed like a disappointing outlook that I think will be anything but. Celgene (CELG) refuses to get caught up in hoopla about coming numbers and its stock's been clubbed continually after it reports.

Finally, I find that Howard Schultz and the gang at Starbucks (SBUX) likes to keep expectations reined in. I think that's so necessary given the seemingly unsustainably great numbers. But they've been beaten like clockwork as the team seems to just outdo itself every quarter.

Still, there's nothing like the annuity you get from Priceline, something that happens only because traders' memories are short and analysts don't get it. That's your opportunity, Next time around, don't forget to take it.

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