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3 Stocks to Benefit from Travel Industry Spending

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With inflation at a 40-year high, the travel industry will certainly not be immune to the effects this has on consumers. However, declining Travel Price Index numbers (TPI) was a bright spot for the travel industry. August TPI number declined by 1.8%, showing that the cost of travel away from home in the U.S had gone down.

Decreasing TPI numbers is a good sign for consumers and companies that benefit from travel and leisure services. Despite falling TPI numbers, many companies have been able to charge a premium for travel and leisure services due to the pent-up demand and delayed trips from the Covid-19 pandemic. This has also helped revenue by offsetting the cost of rising wages and other operating expenses. 

Let’s take a look at three stocks that have a chance to fight inflation and experience growth from consumers who are seeking travel and leisure experiences. 

Airbnb (ABNB - Free Report)

Airbnb is a leading platform for unique stays and experiences. The company provides a marketplace for connecting hosts and guests online or through mobile devices. Airbnb has become quite popular for vacation and travel experiences as people crave privacy and unique experiences outside of hotels.

ABNB currently sports a Zacks Rank #1 (Strong Buy) with EPS estimate revisions on the rise. Airbnb earnings are expected to climb swing from an adjusted loss of -$0.57 per share to +$2.25 a share in 2022, based on Zacks estimates. Fiscal 2023 calls for another 23% earnings growth. Top line growth is expected as well, with sales set to jump 39% this year and another 15% in FY23 to $9.65 billion.

Zacks Investment Research
Image Source: Zacks Investment Research

Despite the stellar earnings growth outlook, ABNB is down -30% year to date. ABNB has underperformed the S&P 500’s -20%. However, the near-term earnings growth could propel the stock.

ABNB’s P/E of 51.9X is much lower than the high of 561.5X it saw earlier in the year and the median of 64.6X. Plus, ABNB’s price-to-sales ratio is starting to come down considerably, as shown in the above chart. We can see that ABNB’s P/S of 10.8X is well below the high of 33.3X it saw over the last two years and the median of 19.4X.

Airbnb’s Internet-Content Industry is also in the top 21% of over 250 Zacks Industries. Plus, the average Zacks Price Target of $142.93 offers 22% upside from current levels.

Also, investors historically want to look for companies that will disrupt an industry. Airbnb while not in the same breadth yet as Amazon or Apple, is helping usher in a new era for hospitality and travel lodging. The more intimate and at-home feeling of Airbnb properties provides a different experience for vacation travelers.

Hyatt Hotels (H - Free Report)

Even with inflation at 40-year highs, upscale hotel chains such as Hyatt have the advantage of pricing power and are able to benefit from premium prices in current market conditions

Hyatt stock has outperformed the benchmark YTD, with it down only -9%. And Hyatt is up +63% over the last two years to crush the S&P 500’s +17%.

Zacks Investment Research
Image Source: Zacks Investment Research

Hyatt Hotels currently trades around $87 a share, roughly 19% below its 52-week highs. At current levels Hyatt has a forward P/E of 131.5X, which is very high for a hotel chain. The industry average is 20.4X, but Hyatt is expected to have substantial earnings growth.

Hyatt Hotels currently lands a Zacks Rank #2 (Buy) with earnings swinging from an adjusted loss of -$5.24 per share to +$0.68 a share in 2022. Hyatt is regaining its pre-pandemic operations with earnings expected to jump 179% in FY23.

Top line growth is also expected to be up 89% this year and another 7% in FY23 to $6.13 billion. It is also important to note that estimate revisions have gone up in the last 60 days. Better yet, Hyatt’s projected revenue for this year and FY23 are now higher than its 2019 pre-pandemic revenue. 

TripAdvisor (TRIP - Free Report)

TripAdvisor is one of the largest online travel research companies in the world, providing a platform for users to share reviews, ratings, and opinions on hotels, destinations, attractions and restaurants. The company also facilitates bookings between hotel suppliers and consumers using its web portals.

TripAdvisor’s platform has become important to consumers looking for reviews from other consumers that sought similar experiences. The site is beneficial in the decision-making process for travel planning.  

TRIP is down -13% this year but its earnings growth shows that the company is getting back to pre-pandemic levels. Plus, over the last two years, TRIP is up a respectable +20% to outperform the benchmark.

Zacks Investment Research
Image Source: Zacks Investment Research

From the chart above we can see TripAdvisor’s sharp peak over the last two years. Wall Street began to ponder the premium it was paying for TRIP and the stock started to fall to compress its valuation alongside the broader market drop. Trading around $24 a share, TRIP has a P/E of 30.5X, much lower than the 183.1X high over the last two years. This is also getting closer to the industry average of 23.6X.

The earnings growth is starting to show TRIP is more reasonably valued than it was in the past. According to Zacks estimates, TRIP earnings are projected to swing from an adjusted loss of -$0.30 to +$0.81 a share in 2022. Fiscal 2023 earnings are expected to grow another 76%, with top line growth expected to climb 63% this year and another 16% in FY23 to $1.71 billion. TripAdvisor’s revenue is edging closer to pre-pandemic levels with FY23 projections expected to surpass 2019 revenue.  

TRIP currently lands a Zacks Rank #3 (Hold) and the Internet-Commerce industry is in the bottom 36% of Zacks Industries. Despite being overvalued in the past, the company’s growth is starting to look more attractive. Plus, the average Zacks price target suggests 9% upside from current levels.

Bottom Line

The travel industry is certainly not immune to the ramifications of inflation. Instead of booking a flight and hotel for a vacation, consumers usually hold off on leisure spending amidst high inflation. However, higher-income consumers are still spending, with travel and leisure being a bright spot.

With that being said, gas prices also declined considerably in August by 10.5%. This was the strongest monthly decline since April 2020. Lodging fares and recreation remained virtually unchanged, but airfare declined 4.6% from July. The broader travel industry is slowly but surely edging back to pre-pandemic levels, presenting opportunities for investors to capitalize on the continued recovery.

In-Depth Zacks Research for the Tickers Above

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Hyatt Hotels Corporation (H) - free report >>

TripAdvisor, Inc. (TRIP) - free report >>

Airbnb, Inc. (ABNB) - free report >>

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