The travel industry is poised for significant growth this year, driven by a resurgence in travel enthusiasm across diverse demographics and positive passenger sentiments. The sector anticipates notable expansion by capitalizing on strong demand for both leisure and business travel.
Therefore, it could be wise to add fundamentally strong travel stocks, International Consolidated Airlines Group S.A. (ICAGY), Cathay Pacific Airways Limited (CPCAY), and Atour Lifestyle Holdings Limited (ATAT) to one’s portfolio.
Before diving deeper into the fundamentals of these stocks, let’s discuss what’s happening in the travel industry.
The travel industry bounced back strongly from pandemic restrictions, driven by a pent-up desire to travel. In 2024, more Americans are planning holiday trips, with 48% doing so and increasing budgets, especially among younger generations.
Investors are showing interest in the sector as well, as evidenced by the U.S. Global Jets ETF’s (JETS) 13.4% returns over the past month.
Hotel demand in 2024 is rising alongside increased travel demand due to factors like economic recovery and pent-up travel desires. The global revenue for travel and tourism is expected to reach $856.10 billion by 2023, growing at a rate of 4.4% from 2023 to 2028. The hotel market, the biggest part of travel and tourism, is projected to draw 1.40 billion users by 2028.
The IATA predicts improved profits for airlines in 2023, and stability is expected in 2024. Total revenues are forecasted to increase 7.6% year-over-year, reaching a record $964 billion in 2024. Additionally, a historic high of 4.7 billion travelers is anticipated in 2024, surpassing the pre-pandemic level of 4.5 billion in 2019.
On top of it, the global airline industry is set to grow in the coming years due to increased disposable income, a growing middle class, and higher travel demand. The market is projected to grow at a CAGR of 25.5% until 2027.
Considering these conducive trends, let’s analyze the fundamentals of the three travel stocks.
International Consolidated Airlines Group S.A. (ICAGY)
Headquartered in Harmondsworth, United Kingdom, ICAGY, with its subsidiaries, provides passenger and cargo transportation services in the United Kingdom, Spain, Ireland, the United States, and the rest of the world.
ICAGY’s 103.94% trailing-12-month Return on Common Equity is 738.3% higher than the 12.40% industry average. Likewise, its 11.85% trailing-12-month Capex/Sales is 300.5% higher than the 2.96% industry average. Additionally, its 14.69% trailing-12-month levered FCF margin is 152.2% higher than the 5.82% industry average.
For the third quarter that ended September 30, 2023, ICAGY’s total revenue increased 18% year-over-year to €8.65 billion ($9.41 billion). Its operating profit rose 43.3% over the prior-year quarter to €1.75 billion ($1.90 billion). Moreover, the company’s profit after tax for the period stood at €1.23 billion ($1.34 billion), up 44.2% year-over-year.
For the quarter ended December 31, 2023, ICAGY’s EPS and revenue are expected to increase 143% and 14.2% year-over-year to $0.11 and $7.69 billion, respectively. It has surpassed the consensus EPS estimates in all of the trailing four quarters. Over the past three months, the stock has gained 15.6% to close the last trading session at $3.85.
ICAGY’s POWR Ratings reflect a positive outlook. 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 is ranked #6 out of 28 stocks in the Airlines industry. It has a B grade for Value and Sentiment. Click here to access ICAGY’s grades for Growth, Momentum, Stability, and Quality.
Cathay Pacific Airways Limited (CPCAY)
Headquartered in Lantau Island, Hong Kong, CPCAY and its subsidiaries operate as carriers of international passengers and air cargo. The company conducts airline operations primarily to and from Hong Kong. Additionally, it offers property investment, travel rewards, financial services, aircraft leasing, airline catering, and ground handling.
In terms of the trailing-12-month levered FCF margin, CPCAY’s 38.59% is 562.5% higher than the 5.82% industry average. Likewise, its 5.71% trailing-12-month Capex/Sales is 93.05% higher than the industry average of 2.96%. In addition, the stock’s 39.82% trailing-12-month gross profit margin is 31.1% higher than the industry average of 30.38%.
CPCAY’s total revenue for the six months that ended June 30, 2023, rose 135% year-over-year to HK$43.59 billion ($5.57 billion). Its operating profit came in at HK$8.77 billion ($1.12 billion), compared to an operating loss of HK$1.25 billion ($160 million) in the year-ago quarter.
For the same period, its profit attributable to the shareholders of CPCAY and earnings per ordinary share came in at HK$4.27 billion ($546.03 million) and HK$55.2, compared to a loss of HK$5 billion ($639.38 million) and loss per share of HK$82.3, respectively.
For the fiscal year ended December 31, 2023, CPCAY’s revenue is expected to increase 84.3% year-over-year to $11.98 billion. Over the past three months, the stock has gained 3.4% to close the last trading session at $5.00.
CPCAY’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, translating to a Buy in our proprietary rating system.
It has an A grade for Growth and a B for Stability and Quality. Within the Airlines industry, it is ranked #3. In total, we rate CPCAY on eight different levels. Beyond what we stated above, we also have given CPCAY grades for Value, Momentum, and Sentiment. Get all the CPCAY ratings here.
Atour Lifestyle Holdings Limited (ATAT)
Headquartered in Shanghai, China, ATAT provides lifestyle brands around hotel offerings in the People's Republic of China. The company operates a series of themed hotels, including music hotels, basketball hotels, and literary hotels catering to various lifestyles and interests across different age groups.
In terms of its trailing-12-month EBIT margin, ATAT’s 16.68% is 117.4% higher than the 7.67% industry average. Its 11.48% trailing-12-month net income margin is 145% higher than the 4.69% industry average. Moreover, its 50.79% trailing-12-month gross profit margin is 44.5% lower than the industry average of 35.15%.
For the fiscal third quarter, which ended on September 30, 2023, ATAT’s net revenues increased 93.1% year-over-year to RMB1.29 billion ($181.83 million). Its income from operations rose 129.9% from the year-ago value to RMB341.34 million ($48.11 million).
For the same quarter, the company’s net income and net income per ordinary share came in at RMB262.07 million ($36.94 million) and $0.63, up 135.8% and 110% over the prior-year quarter, respectively.
Street expects ATAT’s EPS and revenue for the quarter ended December 31, 2023, to increase 134.3% and 87.7% year-over-year to $0.21 and $171.09 million, respectively. Over the past month, the stock has gained 4.9% to close the last trading session at $17.98.
ATAT’s POWR Ratings reflect its solid prospects. It has an overall rating of B, which translates to a Buy in our proprietary rating system.
It is ranked #2 out of 19 stocks in the Travel - Hotels/Resorts industry. It has an A grade for Growth and a B for Quality and Sentiment. Click here to see the other ratings of ATAT for Value, Momentum, and Stability.
What To Do Next?
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ICAGY shares were trading at $3.86 per share on Friday afternoon, down $0.03 (-0.77%). Year-to-date, ICAGY has declined -0.52%, versus a 2.52% 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.
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