After two years of staying put, Americans are once again planning summer vacations, giving the travel industry a boost. So why are investors absent from the trip?
Airlines hinted at the revival when they posted gains in aprilwith
Delta Airlines (symbol: DAL) and
American Air Group (AAL) forecasts a return to profitability throughout 2022. The rest of the industry has followed suit, with many service providers from online travel agents to hotels announcing better-than-expected profits for the March quarter, as demand declines at pre-pandemic levels.
Analysts responded by raising earnings estimates and price targets. But the shares keep falling. the
the index is down 20.7% since the start of the year, while
the index is down 7.1%.
“Someone is wrong,” Yardeni Research observed in a note. “Either industry analysts are overly optimistic in their estimates, or investors [are] too pessimistic on valuations.
Airbnb (ABNB). Last week, the short-term rental market signaled a Surprisingly strong 70% increase in first quarter revenue, at $1.5 billion, and guided to second-quarter sales above Wall Street forecasts. Airbnb cut its losses to three cents per share for the quarter, from $1.95 a year earlier.
The results prompted BofA Securities analyst Justin Post and Deutsche Bank’s Lee Horowitz to raise their estimates for earnings and Ebitda, or earnings before interest, tax, depreciation and amortization.
“We are particularly encouraged by the comments around demand after the peak of the summer months,” he wrote. The results, he said, supported “our view that the post-Covid travel recovery has legs beyond summer 2022.”
But investors do not seem convinced and the title lost 8.4% on Thursday.
The same fate happened
Expedia Group (EXPE) when releasing its results on Tuesday. The online travel company’s revenue rose more than 80% in the first quarter, to about $2.2 billion. Management was anticipating a “robust” summer recovery. And yet, the company’s shares fell 0.5% on Wednesday and are down 23% over the past five days.
Investors appear to be siding with bearish analysts, who have warned that the resurgence in travel may be overstated. Daniel Adam of Loop Capital Markets, for example, fears that slowing economic growth in markets such as Eastern Europe and Asia will put a strain on the global recovery.
There may be some truth in that.
Hilton Worldwide Holdings (HLT) expects revenue per available room, or RevPAR, growth for 2022 to be down 9% from 2019 levels, with Asia and Europe trailing North America.
Marriott International (MAR), which released its results on Wednesday, expects North American RevPAR to be roughly flat from 2019 for the remainder of 2022, and to vary significantly by region. Both companies reported strong earnings this week, but their shares were down 1% and 2% respectively on Thursday.
It didn’t help that Thursday was the worst day for stocks since 2020, spurred by the Federal Reserve’s decision to hike rates half a point – the biggest single-meeting increase in 22 years – fueling fears of a recession.
Given the macro issues facing the sector, investors may focus on specific companies, JP Morgan analyst Doug Anmuth wrote in a research note Thursday. Anmuth, for this part, zeroed out one stock in particular:
Reserve credits (BKNG).
The company, parent of online travel agency Booking.com, is a firm favorite with analysts and investors, posting a 3.2% gain on Thursday even as the S&P 500 fell 3.6% .
Booking significantly exceeded expectations for its first quarter, recording revenue of $2.7 billion, more than double the level of the previous year. The company could be on track to show another pace in the coming quarters as management executes on Booking’s strategic initiative to become a one-stop-shop for travel, analysts said.
At a recent $2,172, the stock is trading at 19.3 times estimated earnings for the next 12 months. Analysts expect adjusted earnings to hit $103.49 per share for the year, roughly on par with 2019 earnings and 126% ahead of 2021 earnings.
“We continue to believe Booking Holdings is the best positioned company in the online travel space,” Anmuth wrote. “We believe there is significant scope for global market share gains.” It has an overweight rating and a price target of $2,900, up around 33%.
It might be time for investors to start selectively booking seats for the long-awaited return of travel.
Write to Sabrina Escobar at firstname.lastname@example.org