U.S. airlines are anticipating the best summer travel season ever in 2018, with 246 million passengers expected to take to the skies between June 1st and August 31st, beating the previous record of 237 million passengers set in 2017. A strong economy is fueling the boom as Americans can increasingly afford to travel afar on Summer vacations, although lower airfares and higher fuel costs will likely dampen the effects on net earnings for air carriers.
Hotels, restaurants and car rentals would also logically enjoy the upswing, after all, after travelers arrive at their destinations, they have to get around, stay somewhere and eat, though labor and commodity costs threaten earnings in those sectors, too.
What if there was a single investment that would benefit from the rise in bookings, but was not subject to the rising costs in the travel and entertainment industry? There is.
Buy the Middleman
Travel booking sites provide one-stop shopping for consumers by aggregating millions of price quotes and providing reservation and referral services, collecting a small percentage on each transaction. They benefit from the increase in activity, regardless of the earnings of their partners.
But there are so many of these sites – as evidenced by the massive volume of television and online advertising we see every day – that it would be hard to pick the winners out of a huge crowd, right?
Expedia, Hotels.com, HomeAway, Trivago, Orbitz, hotwire, CarRentals.com, TripAdvisor, VacationHomeRentals.com, Booking.com, Priceline, Kayak, RentalCars.com and OpenTable are all divisions or subsidiaries of just three publicly traded companies. So are dozens of other lesser known sites operating in the U.S. and around the globe.
Expedia Group Inc (EXPE - Free Report) has been growing its business through a network of majority owned subsidiaries including over a million bookable vacation listings and airline, car rental and cruise reservations. Notable brands include Expedia, Orbitz, Hotels.com and Trivago.
After a Q1 earnings beat, Expedia shares are up 20% from their February lows. The company trades at a 12 month forward P/E Ratio of 30X, which - while high for the market as a whole – is considerably lower than the Electronic Commerce Industry at 56.7X. Expedia’s Price to Sales Ratio is just 1.8X versus 7.2X for the industry.
The Zacks Consensus estimate for earnings in Q3 and full year 2018 are now 30% and 22% higher than 2017 results. Expedia Group is a Zacks Rank #1 (Strong Buy).
Spun off from Expedia in 2011, TripAdvisor Inc (TRIP - Free Report) operates the popular TripAdvisor site as well as 24 other brands all over the globe, including China. Also performing strongly after unexpected strong Q1 earnings, TRIP shares are up 44% since the report on May 8th.
Recent analyst upgrades have been a tailwind for the company which is now expected to earn $1.30/share in 2018, up from $1.15/share just 30 days ago and 30% higher than 2017. TripAdvisor is a Zacks Rank #2 (Buy).
Booking Holdings (BKNG - Free Report) - Formerly the Priceline Group (until a name change in February) - is comprised of Booking.com, Priceline.com, Kayak, RentalCars.com and the popular restaurant reservation service OpenTable.
Since acquiring Booking.com in 2006, shares in the company have risen from the mid-$20s to a recent high of $22.28/share. BKNG has the revenues and earnings to match the high price however, with expected sales in 2018 of $14.6B and earnings of $88.84/share. This values BKNG at an industry low forward P/E ratio of just 24.4X.
Booking Holdings is currently a Zacks Rank #3 (Hold).
In a recently hot market like travel reservations, it can pay to look past the obvious providers to the companies that provide services customers demand and get paid handsomely for it. These travel reservation sites all fit the bill.
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