Analysts Predict Divergence Among Travel Stocks as Post-Pandemic Boom Subsides
As the travel industry recovers from the pandemic, analysts foresee potential rifts among travel stocks. The “revenge” travel trend and the return of business trips have contributed to the recent boom. However, looking ahead to 2024, analysts anticipate a potential divergence within and between sub-sectors of the leisure industry as conditions normalize. It’s important to note that a recession could negatively impact all areas of travel. Barclays analyst Brandt Montour expects overall demand for travel and leisure to remain relatively resilient, but with pockets of weakness as consumers become more discerning with their budgets.
Top Stock Picks in Hotels and Gaming
Within the travel industry, Montour favors areas that offer value propositions to consumers. He looks for unique growth catalysts or self-help stories when evaluating specific companies. His top picks in the hotel and casino chains category are Caesars Entertainment and Hilton Grand Vacations. Despite underperforming the broader market this year, both companies have buy ratings from Wall Street analysts. Caesars’ free cash flow has proven resilient, making it an underappreciated deleveraging story. Hilton Grand Vacations is a good play due to its current valuation and the pending Bluegreen acquisition, which will make it a bigger player in the timeshare market.
Promising Stocks in Planes and Ships
Analysts also see potential in stocks tied to cruise ship and airline travel. Royal Caribbean and Carnival offer value propositions to consumers, which will be crucial if customers seek cheaper ways to travel due to financial constraints. Despite both stocks more than doubling this year after a disastrous 2022, analysts predict divergence in the year ahead. Delta is recommended due to its accelerating growth in maintenance and loyalty businesses, strong balance sheet, and recovery in markets like Asia-Pacific. United Airlines is expanding its premium travel business and experiencing improved revenue in the Pacific market.
Outlook for E-Booking Platforms
Less optimism surrounds digital platforms used for booking travel. Online travel growth is expected to slow as pent-up demand wanes and consumer wallets feel the pressure. However, Booking Holdings, the parent company of Booking.com and Priceline, is seen as a favorable option due to its diverse offering and comprehensive product mix. Expedia is also highlighted as a top choice by some analysts because of its healthy growth, improved margin profile, aggressive buybacks, and low multiple. On the other hand, Airbnb and Tripadvisor are viewed less favorably.
Hot Take: The Future of Travel Stocks
As the travel industry moves past the post-pandemic boom, analysts anticipate divergence among travel stocks. While some sectors may experience continued growth, others may face challenges due to changing consumer preferences and economic conditions. It’s crucial for investors to carefully evaluate individual companies within each sub-sector to identify unique growth catalysts or self-help stories that can drive stock performance. Additionally, factors such as value propositions to consumers, financial resilience, and expansion into new markets should be considered when selecting travel stocks for investment.
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