The travel industry is gaining significantly due to pent-up demand. Traveling is one of the sectors where consumer spending has been strong. With travel demand showing no signs of slowing down, it could be wise to buy fundamentally strong travel stocks: Target Hospitality Corp. (TH), InterContinental Hotels Group PLC (IHG), and Bluegreen Vacations Holding Corporation (BVH).
In this piece, I have discussed why these stocks must be considered ahead of Airbnb, Inc. (ABNB).
As travel restrictions brought on by the pandemic have eased, travel demand has witnessed a solid recovery, positioning the hotels and resorts industry for expansion.
According to WTTC data, the travel and tourism industry increased by 22% year-over-year, reaching $7.7 trillion in 2022. Despite economic and geopolitical challenges, this growth occurred, with the sector contributing nearly 7.6% to the global economy, its highest contribution since 2019. The travel and tourism sector is forecasted to reach $9.5 trillion, just 5% below 2019.
Growth in disposal incomes, a strong labor market, rising interest in exploring new places, and affordable commutes and stays are some factors driving the growth of the travel and tourism industry.
The global travel and tourism market is estimated to grow at a CAGR of 5.3% to reach $972.50 billion by 2031. Hotels and resorts are among the biggest beneficiaries of the growth in travel and tourism.
The favorable travel and tourism trends helped ABNB surpass the consensus EPS and revenue estimates in the second quarter. Its EPS came 26.2% above analyst estimates, while its revenue beat the consensus estimate by 2.7%.
During the second quarter, ABNB’s gross booking value rose 12.4% year-over-year to $19.10 billion. Its revenue increased 18.1% year-over-year to $2.48 billion. The company’s adjusted EBITDA rose 15.2% year-over-year to $819 million. Also, its net income increased 71.5% year-over-year to $650 million. ABNB’s revenue growth continues to decelerate as it slowed for the sixth quarter.
For the third quarter, ABNB expects its revenue to come between $3.30 billion and $3.40 billion, a year-over-year increase of between 14% and 18%. This anticipated increase in revenue is much below its previous increases, indicating a slowdown in revenue growth. It expects record-high adjusted EBITDA in the third quarter.
ABNB currently trades at an expensive valuation. ABNB’s forward EV/Sales of 7.48x is 569% higher than the industry average of 1.12x. Its forward Price/Sales of 8.29x is 910% higher than the industry average of 0.82x. Additionally, its 2.39x forward non-GAAP PEG is 72.1% higher than the 1.39x industry average.
KeyBanc Capital Markets analyst Justin Patterson downgraded ABNB from overweight to sector weight. He believes that the tailwinds from the recovery to leisure travel are fading, which poses a risk to the company’s growth in room and night experiences (RNE) and average daily rate (ADR).
Recently, the company received a jolt as a new law cracking down on short-term rentals in New York City. Thousands of listings on ABNB dropped after the new law, which requires short-term rental operators to register their homes.
ABNB’s stock has gained 49.4% year-to-date to close the last trading session at $127.77.
Considering the uncertainty surrounding ABNB’s near-term prospects, it could be wise to wait for a better entry point in the stock. Meanwhile, investors could look at TH, IHG, and BVH. Now, let’s analyze the fundamentals of these three Travel - Hotels/Resorts stocks, starting with the third choice.
Stock #3: Target Hospitality Corp. (TH)
TH is a specialty rental and hospitality services company in North America that operates through four segments: Hospitality & Facilities Services – South; Hospitality & Facilities Services – Midwest; Government; and TCPL Keystone.
On April 17, 2023, TH acquired strategic assets to support the U.S. government’s humanitarian aid mission. These assets will increase housing capacity to meet the government’s urgent needs, driven by the expected increase in individuals crossing the U.S. Southwest border after the cessation of Title 42 in May 2023. This aligns with the company’s strategy to expand its government support capabilities.
In terms of forward non-GAAP P/E, TH’s 9.77x is 31.6% lower than the 14.28x industry average. Its 0.65x forward non-GAAP PEG is 53.1% lower than the 1.39x industry average. Likewise, its 7.19x forward EV/EBIT is 44.2% lower than the 12.88x industry average.
For the fiscal second quarter ended on June 30, 2023, TH’s revenue increased 31% year-over-year to $143.63 million. Its adjusted gross profit rose 55.8% year-over-year to $100.36 million. Moreover, its net income came in at $46.45 million, representing an increase of 103.3% year-over-year.
Its net income per share came in at $0.44, representing an increase of 83.3% from the prior-year quarter. Also, its adjusted EBITDA increased 62% year-over-year to $90.92 million.
Analysts expect TH’s EPS for the quarter ended September 30, 2023, to increase 33.1% year-over-year to $0.43. Its revenue for the fiscal year ending December 31, 2023, is expected to increase 10.4% year-over-year to $553.93 million. It has surpassed the consensus EPS estimates in three of the trailing four quarters. Over the past year, the stock has gained 30.2% to close the last trading session at $15.67.
TH’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR ratings assess stocks by 118 different factors, each with its own weighting.
It has an A grade for Quality and a B for Growth. Within the B-rated Travel - Hotels/Resorts industry, it is ranked #7 out of 22 stocks. To see TH’s Value, Momentum, Stability, and Sentiment ratings, click here.
Stock #2: InterContinental Hotels Group PLC (IHG)
Headquartered in Windsor, United Kingdom, IHG is a global hotel company that operates various hotel brands worldwide and offers the IHG Rewards loyalty program. The company operates hotels under notable brand names, including Six Senses, Regent, InterContinental Hotels & Resorts, and Vignette Collection.
On October 6, 2023, Hotel Indigo, part of the IHG, announced the opening of its third location in Bordeaux, France, in the Chartrons district. The boutique hotel offers unique rooms inspired by local landmarks and cuisine, a rooftop restaurant, a gym, a coworking space, and conference rooms.
In terms of forward non-GAAP PEG, IHG’s 1.05x is 24.3% lower than the 1.39x industry average.
IHG’s total revenues for the six months ended June 30, 2023, increased 22.7% year-over-year to $1.03 billion. Its operating profit from reportable segments increased 27% year-over-year to $479 million. The company’s adjusted earnings rose 41.1% year-over-year to $316 million.
Moreover, its adjusted EPS came in at 182.7 cents, representing an increase of 50% year-over-year.
Street expects IHG’s EPS and revenue for the fiscal year ending December 31, 2023, to increase 29% and 14.4% year-over-year to $3.64 and $2.11 billion, respectively. Over the past year, the stock has gained 48.8% to close the last trading session at $73.58.
IHG’s positive outlook is reflected in its POWR Ratings. It has an overall rating of B, equating to a Buy in our proprietary rating system.
It has a B grade for Growth, Sentiment, and Quality. It is ranked #4 in the same industry. To see IHG’s Value, Momentum, and Sentiment ratings, click here.
Stock #1: Bluegreen Vacations Holding Corporation (BVH)
BVH operates as a vacation ownership company. The company markets and sells vacation ownership interests (VOI); and manages resorts in leisure and urban destinations, including Orlando, Las Vegas, Myrtle Beach, Charleston, and New Orleans.
On June 14, 2023, BVH announced the expansion of its top-tier accommodations at its MountainLoft resort in Gatlinburg, Tennessee, with the addition of three new presidential suites. Additionally, they announced plans to construct new presidential suites at The Fountains Resort in Orlando, Florida, and outlined expansion plans for other properties.
Mr. Dusty Tonkin, Chief Sales and Marketing Officer at BVH, said, “Bluegreen currently has over 160 presidential suites across our resorts. As we expand, we believe it is important that we continue to improve our existing product to ensure that all of our accommodations meet the evolving needs and expectations of our owners.”
On May 15, 2023, BVH announced its expansion into the Nashville, Tennessee, market by acquiring two properties in the historic Printers Alley district. One property with 86 rooms and penthouse suites will be sold as vacation ownership interests, while the other will be converted into a sales preview center.
This acquisition is part of BVH’s recent portfolio expansion, including properties in Missouri, Florida, Colorado, and Tennessee and an increase in presidential suite inventory.
In terms of forward EV/EBIT, BVH’s 8.58x is 33.4% lower than the 12.88x industry average. Its 0.60x forward Price/Sales is 27.5% lower than the 0.82x industry average. Likewise, its 8.11x forward non-GAAP P/E is 43.2% lower than the 14.28x industry average.
For the fiscal second quarter that ended June 30, 2023, BVH’s total revenues increased 10.6% year-over-year to $260.62 million. The company’s net income attributable to shareholders increased 23.2% year-over-year to $21.91 million. Moreover, its EPS came in at $1.34, representing an increase of 54% year-over-year. Also, its adjusted EBITDA rose 16.8% year-over-year to $45.31 million.
BVH’s EPS and revenue for the quarter ended September 30, 2023, are expected to increase 12.6% and 1.7% year-over-year to $1.35 and $255.14 million, respectively. It has surpassed the consensus EPS estimates in each of the trailing four quarters. Over the past year, the stock has gained 99.4% to close the last trading session at $33.98.
BVH’s POWR Ratings reflect solid prospects. It has an overall rating of B, which translates to a Buy in our proprietary rating system.
It is ranked #2 in the Travel - Hotels/Resorts industry. It has an A grade for Sentiment and a B for Value. Click here to see BVH’s Growth, Momentum, Stability, and Quality ratings.
What To Do Next?
Discover 10 widely held stocks that our proprietary model shows have tremendous downside potential. Please make sure none of these “death trap” stocks are lurking in your portfolio:
IHG shares were trading at $75.18 per share on Tuesday afternoon, up $1.60 (+2.17%). Year-to-date, IHG has gained 31.59%, versus a 15.01% rise in the benchmark S&P 500 index during the same period.
About the Author: Abhishek Bhuyan
Abhishek embarked on his professional journey as a financial journalist due to his keen interest in discerning the fundamental factors that influence the future performance of financial instruments.
3 Travel Stocks Leaving Airbnb (ABNB) in October StockNews.com
