Rising discretionary incomes, increases in consumer spending, technological advancements, and significant pent-up travel demand are boosting the prospects of the travel industry. Amid this backdrop, investors could consider adding travel stocks Airbnb, Inc. (ABNB), Target Hospitality Corp. (TH), The Marcus Corporation (MCS), and Atour Lifestyle Holdings Limited (ATAT) to one’s portfolio for potential gains.
But before delving into the fundamentals of these travel stocks, let’s first understand the industry landscape better.
With the easing of the pandemic-associated travel constraints, the travel industry has witnessed a consistent operational revival. Total travel spending stood at $104 billion in September, rising 0.8% year-over-year and 3.5% year-to-date through September. Improved business and group travel and an increase in international travel are expected to boost the prospects of the hotel/resort industry.
PwC has projected the full-year occupancy of U.S. hotels to reach 63%, rising 0.7 percentage points year-over-year. The full-year average daily rate (ADR) is expected to rise 4.5% year-over-year to $155.92 this year, up from the previous projection of $155.21. Also, it expects full-year RevPAR to come in at $98.25, rising 5.2% year-over-year.
Furthermore, the growth of the experience economy is driving the demand for hotels and resorts. Entertainment and leisure activities prompt people to pay a premium for memorable experiences. Spending on entertainment and leisure has not been affected by inflationary pressures, thereby helping the hotel/resort industry to capitalize on the experience opportunity.
Revenue in the worldwide hotels market is projected to grow at a CAGR of 4.2% to reach $483.40 billion by 2027, with users amounting to 1.33 billion. The average revenue per user (ARPU) is expected to be $0.36k.
Given the industry tailwinds, it’s time to examine the fundamentals of the top four stocks in the Travel – Hotels/Resorts industry, starting with the fourth in line.
Stock #4: Airbnb, Inc. (ABNB)
Airbnb, Inc., together with its subsidiaries, operates a platform that enables hosts to offer stays and experiences to guests worldwide. The company's marketplace model connects hosts and guests online or through mobile devices to book spaces and experiences. It primarily offers private rooms, primary homes, or vacation homes.
In terms of the trailing-12-month EBIT margin, ABNB’s 23.45% is 212% higher than the 7.52% industry average. Likewise, its 56.87% trailing-12-month net income margin is significantly higher than the 4.45% industry average. Furthermore, its 74.47% trailing-12-month Return on Common Equity is 565.7% higher than the 11.19% industry average.
ABNB’s revenue for the fiscal third quarter that ended September 30, 2023, increased 17.8% year-over-year to $3.40 billion. Its income from operations rose 24.4% year-over-year to $1.50 billion. Additionally, the company’s net income and EPS attributable to Class A and Class B common stockholders improved 260.3% and 270.4% from previous year value to $4.38 billion and $6.63, respectively. Also, its adjusted EBITDA increased 25.9% over the prior-year quarter to $1.83 billion.
Analysts expect ABNB’s EPS and revenue for the quarter ending December 31, 2023, to increase 36.5% and 13.4% year-over-year to $0.66 and $2.16 billion, respectively. It surpassed the consensus EPS estimates in each of the trailing four quarters. The stock has gained 49.2% year-to-date to close the last trading session at $127.56.
ABNB’s solid prospects are reflected in its POWR Ratings. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has an A grade for Quality. It is ranked #9 out of 20 stocks in the Travel – Hotels/Resorts industry. To see ABNB’s Growth, Value, Momentum, Stability, and Sentiment ratings, click here.
Stock #3: Target Hospitality Corp. (TH)
TH is a specialty rental and hospitality services company, offering accommodation units and a range of services to government entities, government contractors, natural resource development firms, and energy infrastructure companies. Its services include catering, maintenance, security, and more.
On April 17, TH acquired strategic assets to bolster its capacity in support of the U.S. government's humanitarian aid mission. The acquisition aims to address the anticipated surge in individuals crossing the U.S. Southwest border.
This move aligns with TH's strategy to expand services for government agencies and capitalize on the growing demand in the government end-market, reinforcing its commitment to high-return capital allocation initiatives.
In terms of the trailing-12-month EBITDA margin, TH’s 58.40% is 428.9% higher than the 11.04% industry average. Likewise, its 68.59% trailing-12-month gross profit margin is 92.1% higher than the 35.71% industry average. Additionally, its 15.80% trailing-12-month Capex/Sales is 402.7% higher than the 3.14% industry average.
For the fiscal third quarter ended on September 30, 2023, TH’s total revenue stood at $145.94 million. It’s adjusted gross profit increased 10.3% year-over-year to $104.41 million. The company’s adjusted EBITDA grew 12.6% year-over-year to $95.04 million. TH’s net income stood at $45.58 million and $0.43 per share, registering improvements of 139.6% and 115% over the prior-year quarter.
For fiscal 2023, TH’s EPS and revenue are expected to improve 64.9% and 11.9% year-over-year to $1.62 and $561.70 million, respectively. Additionally, it topped the Street EPS estimates in each of the trailing four quarters, which is impressive. Over the past month, the stock has declined 23.5% to close the last trading session at $10.87.
TH’s strong fundamentals are reflected in its POWR Ratings. It has a B grade for Quality. It is ranked #8 in the same industry. Click here to see the additional ratings of TH for Growth, Value, Momentum, Stability, and Sentiment.
Stock #2: The Marcus Corporation (MCS)
MCS owns and operates movie theatres, hotels, and resorts in the United States. The company’s Theatres segment operates multiscreen motion picture theatres and Funset Boulevard. Its Hotels and Resorts segment owns and operates full-service hotels and resorts and manages full-service hotels, resorts, and other properties.
MCS’ trailing-12-month Capex/Sales of 5.08% is 24.3% higher than the 4.09% industry average. Likewise, its trailing-12-month asset turnover ratio of 0.64x is 24% higher than the 0.52x industry average. Additionally, its 8.54% trailing-12-month levered FCF Margin is 11.8% higher than the 7.64% industry average.
MCS’ total revenue for the fiscal third quarter that ended September 28, 2023, increased 13.7% year-over-year to $208.77 million, while its operating income increased 133.9% over the prior-year quarter to $20.93 million.
Also, its net earnings rose 272% year-over-year to $12.23 million, while its earnings per common share stood at $0.32, representing an increase of 220% year-over-year. In addition, its adjusted EBITDA increased 51.9% over the prior-year quarter to $42.33 million.
Street expects MCS’ revenue for the quarter ending March 31, 2023, to increase 2.1% year-over-year to $155.54 million. The stock has slumped 1.5% year-to-date to close the last trading session at $14.17.
Unsurprisingly, MCS has an overall rating of B, translating to a Buy in our proprietary rating system.
It has a B grade for Growth, Value, and Quality. MCS is ranked #5 in the Travel – Hotels/Resorts industry. To see the additional ratings of MCS for Momentum, Stability, and Sentiment, click here.
Stock #1: Atour Lifestyle Holdings Limited (ATAT)
Headquartered in Shanghai, China, ATAT specializes in offering themed hotels, such as music, basketball, and literary hotels, catering to diverse age groups and interests. In addition to managing hotels and providing franchise services, the company also sells hotel supplies and other products.
ATAT’s 11.48% trailing-12-month net income margin is 157.8% higher than the 4.45% industry average. Furthermore, its 27.66% trailing-12-month levered FCF margin is 436.7% higher than the 5.15% industry average. Additionally, its 25.01% trailing-12-month Return on Common Equity is 123.5% higher than the 11.19% industry average.
For the fiscal third quarter that ended September 30, 2023, ATAT’s total revenue increased 93.1% year-over-year to RMB1.29 billion ($181.67 million), while its adjusted net income increased 144.7% from the prior-year quarter to RMB271.99 million ($38.30 million).
Also, its net income per common share stood at RMB0.63, representing an increase of 110% year-over-year. In addition, its adjusted EBITDA increased 122.4% over the prior-year quarter to RMB380.08 million ($53.53 million).
For the quarter ending December 31, 2023, analysts expect ATAT’s revenue and EPS to increase 87.8% and 133.1% year-over-year to $171.17 million and $0.21, respectively. Over the past year, the stock has gained 52% to close the last trading session at $18.85.
ATAT’s POWR Ratings reflect this positive outlook. It has an overall rating of B, equating to a Buy in our proprietary rating system.
It has an A grade for Growth and a B for Sentiment and Quality. ATAT is ranked #2 in the same industry. Click here to see the additional ratings of MCS for Value, Momentum and Stability.
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ABNB shares were trading at $126.33 per share on Wednesday morning, down $1.23 (-0.96%). Year-to-date, ABNB has gained 47.75%, versus a 20.35% rise in the benchmark S&P 500 index during the same period.
About the Author: Dipanjan Banchur
Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.
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