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Travelers’ dream: springtime in Paris. Business at some online travel agencies has nearly doubled.
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After two years of mostly staying put, Americans are again planning summer vacations, giving a big lift to the travel industry. So why are investors sitting out the trip?
Airlines hinted at the revival when they posted earnings in April, with
Delta Air Lines (ticker: DAL) and
American Airline Group (AAL) predicting a return to profitability throughout 2022. The rest of the industry has followed suit, with many service providers, from online travel agents to hotels, reporting better-than-expected earnings for the March quarter, as demand inches back to prepandemic levels.
Analysts have responded by raising earnings estimates and price targets. But the stocks just keep going down. The
Dow Jones U.S. Travel & Tourism
index is down 20.7% year to date, while the
S&P 500 Hotel Resorts & Cruise Lines
index is off 7.1%.
“Someone’s wrong,” Yardeni Research observed in a note. “Either industry analysts are too optimistic in their estimates or investors [are] too pessimistic about valuations.”
Take
Airbnb (ABNB). This past week, the short-term rental marketplace reported a surprisingly strong 70% jump in first-quarter revenue, to $1.5 billion, and guided to second-quarter sales higher than Wall Street’s forecasts. Airbnb narrowed its losses to three cents a 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 revenue and Ebitda, or earnings before interest, taxes, depreciation, and amortization.
“We are particularly encouraged about comments around demand post the peak summer months,” he wrote. The results, he said, supported “our view that the post-Covid travel recovery has legs beyond summer 2022.”
But investors appear unconvinced, and the stock lost 8.4% on Thursday.
The same fate befell
Expedia Group (EXPE) when it reported earnings Tuesday. The online travel company’s revenue rose more than 80% for the first quarter, to about $2.2 billion. Management predicted a “robust” summer recovery. And yet, the company’s shares dipped 0.5% Wednesday, and have lost 23% over the past five days.
Investors seem to be siding with bearish analysts, who have cautioned that the travel resurgence may be overstated. Loop Capital Markets’ Daniel Adam, for instance, is concerned that the slower pace of economic growth in markets such as Eastern Europe and Asia will put a strain on the global recovery.
There may be some truth to that.
Hilton Worldwide Holdings (HLT) is expecting revenue per available room, or RevPAR, growth for 2022 to be down as much as 9% from 2019 levels, with Asia and Europe trailing North America.
Marriott International (MAR), which reported earnings on Wednesday, is expecting North American RevPAR to be roughly flat compared with 2019 for the remainder of 2022, and vary widely across regions. 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 by half a point—the biggest single-meeting increase in 22 years—fueling fears of a recession.
Given the macroeconomic issues facing the industry, investors may be shifting their focus toward specific companies, wrote J.P. Morgan analyst Doug Anmuth in a research note Thursday. Anmuth, for this part, has zeroed in one stock in particular:
Booking Holdings (BKNG).
The company, parent of online travel agency Booking.com, is a favorite among analysts and investors, posting a 3.2% gain on Thursday even as the S&P 500 dropped by 3.6%.
Booking handily beat expectations for its first quarter, reporting revenue of $2.7 billion, more than double the year-earlier level. The company could be on track to post another beat in the following quarters as management executes on Booking’s strategic initiative of becoming a one-stop shop for travel, analysts say.
At a recent $2,172, the stock trades at 19.3 times estimated earnings for the next 12 months. Analysts are expecting adjusted earnings to clock in at $103.49 per share for the fiscal year, about even with 2019’s earnings and topping 2021’s by 126%.
“We continue to believe Booking Holdings is the best-positioned company in the online travel space,” Anmuth wrote. “We think there is meaningful room for global share gains.” He has Overweight rating and a $2,900 price target, up some 33%.
It could be time for investors to start selectively booking seats on the long-awaited return of travel.
Write to Sabrina Escobar at sabrina.escobar@barrons.com