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Web Hotel Business: Wings For Pegasus

BusinessWeek Investor -- Inside Wall Street

Web Hotel Business: Wings for Pegasus

Like most of the erstwhile high-flying Internet stocks, Pegasus Systems (PEGS) has taken a sharp hit. The company, which dominates the market for online hotel reservations, went public in August, 1997, at 13 a share and rose to nearly 50 by May 3, 1999. It has since fallen to 32. Not to worry, say analysts--who predict the stock will soon exceed its old high.

Here's why: Unlike most Internet companies, Pegasus makes money, trading at 33 times estimated 2000 earnings of 95 cents a share. Bear Stearns analyst James Kissane says that, given Pegasus' strong revenue growth and prospects for margin expansion, Pegasus could grow much faster than the average computer-service company over the next several years.

He expects Pegasus earnings to rise by at least 40% annually over the next several years. "Pegasus is the premier provider of transaction processing and E-commerce services to the hotel industry," says Kissane.

Pegasus CEO John Davis says the accelerating trend toward online hotel bookings is the key engine for the company's growth, generating 42% of its revenues. The upside potential to online bookings is huge, says Davis, since only 11% of all hotel reservations, so far, are done through the Web. In all of 1998, Pegasus booked 750,000 Internet reservations. In the first quarter, Pegasus has booked 360,000 online reservations.By Gene G. MarcialReturn to top

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