U.S. consumers look like they are beginning to pull back on travel spending, the data show. But it could be an illusion and some stocks remain white hot. <\/p>\n
Most of the key indicators reflect domestic demand and mask the continued boom from consumers vacationing overseas.<\/p>\n
\n
At first glance the data certainly point to a softening. Airline fares fell for a second consecutive month in May, according to U.S. inflation data, while hotel demand has also receded for two straight months, the U.S. travel association said. Hotel occupancy rates and revenue per room have also fallen year over year for the past two weeks, according to STR data.<\/p>\n
While investors might be tempted to take profits, significantly, the above data largely track domestic trends, so there are still opportunities to be had from stocks exposed to this summer\u2019s white hot international travel demand. <\/p>\n
As Americans shift their vacation preferences, and spending, from at home to overseas, investors may want to consider doing the same with travel stocks. <\/p>\n
\u201cWe do not believe such weakness is recession-related, rather following three summers where Americans vacationed domestically, we observe that they are heading internationally this summer,\u201d
\n Truist
\n analyst Patrick Scholes\u00a0<\/strong>said.<\/p>\nThe data check out. London hotel room rates surged close to 20% in May, STR said last week, while Amsterdam rates hit record highs in April. Airfares to Europe from the U.S. are averaging $1,200 per round trip, online travel agency Hopper said\u2014the highest in more than five years.<\/p>\n
Considering this, investors may want to consider these stocks, which are exposed to international markets.<\/p>\n
Staying Power<\/h2>\n
Truist\u2019s analysts said
\n Hyatt Hotels
\n are their favorite hotel stock, for that very reason. They noted that around 30% of Hyatt\u2019s earnings come from its Caribbean-centric Apple Leisure Group business, and said it would also benefit from the strength of leisure demand in Europe. Scholes said he sees more pressure on U.S. resort and leisure hotels due to the return of cruising demand and supply growth in short-term rentals.<\/p>\n
Hyatt stock has risen around 25% so far in 2023 but Wall Street is confident it can move higher. Analysts covering the shares have an average price target of $128.35, implying a 13% upside to Friday\u2019s price. The shares are more expensive than those of Hyatt\u2019s peers, trading at 32 times estimated 2024 earnings, compared with the industry average of 21 times, according to
\n FactSet
\n data.\u00a0\u00a0\u00a0<\/p>\n
Analysts expect Hyatt\u2019s second-quarter earnings to jump 87% from the same period in 2022, with growth then slowing to around 25% in the third quarter. But the strong international travel trends mean upside surprises could be on the cards.<\/p>\n
Ship Shape<\/h2>\n
Cruise line stocks have led the travel industry\u2019s march higher in 2023, partly because the sector\u2019s post-Covid recovery has lagged others.
\n Royal Caribbean
\n (RCL) is up 93% so far in 2023,
\n Carnival Corp
\n (CCL) has climbed 97%, and
\n Norwegian Cruise Line Holdings
\n (NCLH) is up 56%. Cruise operators are internationally focused by their very nature, so it\u2019s no surprise they are having a good year. <\/p>\n
Investors may feel they\u2019ve missed out on the rally but Melius Research analyst Conor Cunningham said they \u201cstill have room to move higher.\u201d<\/p>\n
\u201cRoyal [Caribbean] has been the poster child for the financial recovery in the cruise industry and appears well-positioned for earnings growth,\u201d he added.<\/p>\n
The cruise operator\u2019s stock may have almost doubled in 2023 but it still sits around 30% below its prepandemic January 2020 high, suggesting more gains could be ahead. Wall Street isn\u2019t so sure\u2014analysts have an average price target of $92.77, implying a 3% downside from here. Yet 63% of those covering the stock rate it Buy, 37% have a Hold rating, and there are no Sell ratings.<\/p>\n
The shares are relatively cheap, trading at 13.6 times estimated 2024 earnings, compared with the FactSet industry average of 15.9 times. Analysts expect strong second- and third-quarter earnings growth in 2023 and again in 2024, with the other two quarters\u2014typically quieter in the cruise industry\u2014also enjoying growth.<\/p>\n
Ready for Takeoff<\/h2>\n
Airline stocks are defying the domestic data at the moment.<\/p>\n
Airfares fell 3% in May, after a 2.6% decrease in April, according to May\u2019s Consumer Price Index data. On an annual basis airfares fell 13.4%\u2014the largest drop since March 2021. Falling airfares point to softening demand, but the slump is not quite as bad as those figures might suggest.<\/p>\n
Firstly, the White House\u2019s Council of Economic Advisers said declining airfares reflected lower fuel costs, highlighting it as an example of falling energy prices passing through to core inflation. Also, fares were at record levels in May 2022\u2014the comparable month.<\/p>\n
\n J.P. Morgan
\n analyst Jamie Baker told Barron\u2019s<\/em> CPI is \u201chighly skewed\u201d to domestic data and that \u201cthere\u2019s currently an ongoing year\/year shift from domestic to international destinations.\u201d<\/p>\nThe international shift may also explain airline stocks\u2019 recent hot streak.
\n Delta Air Lines
\n (DAL) enjoyed a record 15-day winning run from the Thursday before Memorial Day weekend to Friday last week.
\n United Airlines
\n (UAL) and
\n American Airlines
\n (AAL) had their own eight-day streaks snapped on the same day. It\u2019s no coincidence those three carriers are the most exposed to international travel. Close to 40% of United\u2019s 2019 revenue came from overseas travel, compared with Delta\u2019s 30% and American\u2019s 25%, according to Melius Research data.<\/p>\n
Baker put the recent outperformance down to lower fuel costs, in a recent note, but said J.P. Morgan continues to prefer airlines with \u201cexposure to the booming international market.\u201d It has Overweight ratings on American, Delta, and United, and Underweight ratings on the more domestically focused
\n JetBlue Airways
\n (JBLU) and
\n Spirit Airlines
\n (SAVE).<\/p>\n
The softening, or normalizing, of domestic demand is good news for the Federal Reserve in its battle against inflation. But at the same time it\u2019s no bad thing for travel stocks, as long as they are exposed to the summer international boom.<\/p>\n
Write to Callum Keown at callum.keown@barrons.com<\/p>\n<\/p><\/div>\n
Read the full article here<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"U.S. consumers look like they are beginning to pull back on travel spending, the data show. But it could be an illusion and some stocks remain white hot. Most of the key indicators reflect domestic demand and mask the continued boom from consumers vacationing overseas. At first glance the data certainly point to a softening. […]<\/p>\n","protected":false},"author":1,"featured_media":25329,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"video","meta":{"footnotes":""},"categories":[239],"tags":[83],"class_list":["post-25622","post","type-post","status-publish","format-video","has-post-thumbnail","hentry","category-investing","tag-featured","post_format-post-format-video"],"yoast_head":"\n
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