Investors eye shares of hotels, cruise lines as U.S. vaccinations pick
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[February 13, 2021] By
NEW YORK (Reuters) - Investors are watching
next week's earnings reports from hotels, cruise lines and other
businesses that have been hard hit by COVID-19 for indications of which
companies could be the first to bounce back when the pandemic recedes.
For nearly a year, money managers have largely looked past earnings in
the travel and leisure sector, where coronavirus-fueled lockdowns and
travel restrictions battered companies’ businesses and crushed their
stock prices: shares of Marriott and Norwegian Cruise Lines, for
example, are down 12% or more in the last year, compared to a nearly 17%
gain for the S&P 500 through Friday afternoon.
Next week’s numbers, however, may offer clues on which companies are in
the best financial health and would benefit the most from economic
reopening, while also allowing investors to better gauge where companies
should be valued.
"The results across the board are going to be bad, but it's really going
to be about who is coming back," said Adam Trivison, a portfolio manager
at Gabelli Funds.
The focus on travel and leisure companies comes as investors more
broadly gauge the effectiveness of the U.S. vaccination effort and the
degree to which it will help the economy get back on track.
The White House announced Feb. 2 that it will start shipping vaccines
directly to retail pharmacies alongside regular shipments to states,
increasing weekly supplies of shots to 11.5 million. Approximately 10.5%
of the U.S. population through Feb. 11 had received at least one of the
two shots required for full vaccination, according to estimates by the
Centers for Disease Control and Prevention.
Will Hilkert, portfolio manager of the Fidelity Select Leisure fund,
said that earnings results over the next two quarters will serve as a
gut check for investors who had bet on the leisure sector as a play on
the economy reopening.
"Over the next six to nine months you're going to get a chance to make
sure that what you think the world is going to look like after the
pandemic is being matched by company fundamentals," he said.
Hilton Worldwide Holdings Inc and Hyatt Hotels Corp are expected to
release their results on Feb. 17, followed by Marriott, Norwegian Cruise
Lines and TripAdvisor on Feb. 18.
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People look at Norwegian Bliss, the largest cruise ship to transit
the expanded Panama Canal through Cocoli locks, as it passes through
the Canal on the outskirts of Panama City, Panama May 14, 2018.
REUTERS/Carlos Lemos/File Photo
Trivison, of Gabelli Funds, said he will be keeping an eye on hotel bookings in
the group meeting business, which he expects to offer clues on the scale of
employee travel in the week ahead. Business travelers typically make up 25% of a
hotel chain's customers, though that number may be higher in destinations such
as Orlando and Las Vegas.
Historically high valuations in the hospitality sector may give some potential
investors a pause before buying at current levels, said Daniel Kane, a portfolio
manager at Artisan Partners who bought shares of Marriott while its stock was
tumbling last March and April.
Most stocks in the hospitality sector are now trading based on estimates of
their 2023 results, pushing their current valuations well above their long-term
averages, said Robin Farley, an analyst at UBS.
Marriott, for example, trades at a trailing price to earnings multiple of 240.7,
while Hilton is currently unprofitable but trades at 515.7 its current fiscal
year's full year earnings, according to Refinitiv data.
Cruise lines, meanwhile, are not expected to become widely profitable again
until 2022, when most international travel restrictions should be eased.
Norwegian, for instance, trades at 35.2 times its 2022 estimated earnings, while
Royal Caribbean trades at 40.4 times its 2022 estimated earnings, according to
Refinitiv. Marriott was trading at a trailing P/E of about 16 before widespread
economic restrictions were put in place in March.
Chris Terry, a portfolio manager with Hodges Funds, has been paring back a
position in Norwegian after shares of the company rallied following the vaccine
approvals. He is now watching for the company to show incremental improvement in
its upcoming earnings report to confirm that business is rebounding.
"Going back a year ago, quarterly earnings were basically irrelevant," he said.
"Now we want to see that there's progress on the timetable to get revenues back
to where they were in a meaningful way."
(Reporting by David Randall; Editing by Ira Iosebashvili and Nick Zieminski)
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