On Tuesday, TD (TSX:TD) Cowen adjusted its stance on Despegar.com (NYSE:DESP), shifting from a Sell to a Hold rating and increasing the price target to $19.50, up from the previous target of $14.00. This change in rating comes in response to the announcement of Despegar.com's acquisition by Prosus (OTC:PROSF) (PRX.AS), a significant Dutch holding company associated with Naspers.
The acquisition price is set at $19.50 per share in cash, which represents a 33% premium over Monday's closing price of $14.65. The announcement comes as Despegar.com has shown impressive momentum, with InvestingPro data showing a 105.71% year-to-date return and strong revenue growth of 16.73%.
The analyst noted that the valuation of Despegar.com at 26 times its projected 2025 earnings per share is justified by the acquisition terms. The deal is anticipated to close by the end of the second quarter in 2025. Despite previous economic and currency challenges in Brazil that led to the November 25 downgrade, the company maintains strong fundamentals with an impressive gross profit margin of 71.07%. InvestingPro subscribers have access to 12 additional key insights about Despegar.com's financial health and market position.
Expedia Group (NASDAQ:EXPE), which owns an 11% stake in Despegar.com, is acknowledged by the analyst, who also mentioned that a competing bid for the company is not expected. The new price target of $19.50 is set to align with the terms of the acquisition deal.
The upgrade to a Hold rating indicates a neutral stance on the stock, suggesting that TD Cowen believes Despegar.com's shares are now fairly valued given the impending acquisition by Prosus. The price target adjustment to $19.50 is directly tied to the proposed acquisition price, offering a clear rationale for the change.
In other recent news, Despegar.com Corp. has reported an increase in net revenue and adjusted EBITDA for the third quarter, surpassing estimates from Morgan Stanley (NYSE:MS). The company's net revenue saw a year-over-year increase of 9%, and the adjusted EBITDA for the quarter nearly doubled from the previous year. Morgan Stanley has maintained its Overweight rating on Despegar.com and increased the price target to $21.00 from $17.00, following the company's recent performance.
The company also announced a 10-year lodging outsourcing agreement with Expedia, set to commence on January 1, 2025. This development, along with strategic B2B and Software (ETR:SOWGn) as a Service initiatives, is part of Despegar's long-term growth strategies.
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. Analysts at Morgan Stanley have echoed this optimism, upgrading earnings forecasts and lifting the stock target by 23%.
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