After two years of staying put, Americans are once again planning their summer vacations, giving a huge boost to the travel industry. So why are investors staying away from the trip?
Airlines hinted at a recovery when it announced earnings in April, with
(Stock bar: DAL) and
American Airlines Group
(AAL) predicts a return to profitability throughout 2022. The rest of the industry, along with many service providers, from online travel agents to hotels, reported better-than-expected earnings for the March quarter, as demand returned to pre-pandemic levels.
Analysts responded by raising earnings estimates and price targets. But stocks continue to decline. The Dow Jones Travel & Tourism Index is down 20.7% year-to-date, while the
S&P 500 Hotel Resorts & Cruise Lines
The index is off 7.1%.
Yardeni Research noted in a “Someone’s Wrong” note. “Industry analysts are too optimistic in their estimates or investors [are] Very pessimistic about the ratings.”
(ABNB). Last week, the short-term rental market posted a surprisingly strong 70% jump in first-quarter revenue, to $1.5 billion, and headed into second-quarter sales above Wall Street expectations. Airbnb trimmed its losses to three cents a share for the quarter, from $1.95 a year earlier.
The results prompted analysts at Bank of America Securities Justin Post and Lee Horowitz of Deutsche Bank to raise their estimates of revenue and Ebitda, or EBITDA.
“We particularly encourage comments about demand after the peak summer months,” he wrote. He said the results support “our view that the post-Covid travel recovery has legs after the summer of 2022.”
But investors seem unconvinced, and the stock lost 8.4% on Thursday.
Same fate befell
(EXPE) when it announced earnings on Tuesday. The online travel company’s revenue rose more than 80% in the first quarter, to about $2.2 billion. Management expected a “strong” recovery in the summer. However, the company’s shares fell 0.5% on Wednesday, losing 23% over the past five days.
Investors seem to be leaning toward bearish analysts, who have warned that the return of travel could be overblown. For example, Daniel Adam of Loop Capital Markets worries that slowing economic growth in markets such as Eastern Europe and Asia will put pressure on the global recovery.
There may be some truth in that.
Hilton Worldwide Holdings
(HLT) expects revenue per available room, or RevPAR, for 2022 growth to fall as much as 9% from 2019 levels, with Asia and Europe after North America.
(MAR), which announced earnings on Wednesday, expects RevPAR in North America to be roughly flat compared to 2019 for the remainder of 2022, and to vary widely across regions. Both companies reported solid earnings this week, but their shares fell 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 raise interest rates by half a point – the largest single meeting increase in 22 years – sparking fears of a recession.
Given the macroeconomic issues facing the industry, investors may shift their focus toward specific companies, JP Morgan analyst Doug Anmuth wrote in a research note Thursday. Anmuth, for this part, has been described in one repository in particular:
The parent company of online travel agency Booking.com, a favorite among analysts and investors, posted a 3.2% gain Thursday even as the S&P 500 tumbled 3.6%.
Booking easily beat expectations in the first quarter, posting revenue of $2.7 billion, more than double the previous year’s level. Analysts say the company may be on its way to spreading another beat in the following quarters as management implements Booking’s strategic initiative to become a one-stop travel destination.
At $2,172, the stock is trading at 19.3 times estimated earnings for the next 12 months. Analysts expect adjusted earnings to reach $103.49 per share for the fiscal year, roughly even with 2019 earnings and exceeding 2021 by 126%.
“We continue to believe that Booking Holdings is the best online travel website,” Anmuth wrote. “We think there is room for gains in global equities.” It has an overweight rating and a $2,900 target price, up about 33%.
It may be time for investors to start selectively reserving seats on their long-awaited return to travel.
write to Sabrina Escobar at [email protected]