For Immediate Release
Chicago, IL – November 29, 2016 – Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include Marriott (NASDAQ:(MAR - Free Report) –Free Report),Hilton (NYSE:(HLT - Free Report) –Free Report),Priceline (NASDAQ:(PCLN - Free Report) –Free Report),Expedia (NASDAQ:(EXPE - Free Report) –Free Report) and Southwest (NYSE:(LUV - Free Report) – Free Report).
Today, Zacks is promoting its ''Buy'' stock recommendations. Get #1Stock of the Day pick for free.
Here are highlights from Monday’s Analyst Blog:
Avoid Travel Stocks for Now
By travel stocks I mean hotel stocks like Marriott (NASDAQ:(MAR - Free Report) –Free Report), Hilton (NYSE:(HLT - Free Report) – Free Report) and Wyndham Worldwide, online hotel booking companies like Priceline (NASDAQ:(PCLN - Free Report) –Free Report) and Expedia (NASDAQ:(EXPE - Free Report) – Free Report) , recommendation sites like TripAdvisor and other players facilitating or indirectly involved in the travel business.
The segment has suffered the brunt of terror attacks, Brexit uncertainties and the stronger dollar, which combined to contain hotel demand for much of the year. The question, then, is whether the weakness will continue (for these or other reasons), or is it time to look beyond these issues to more positive indicators perhaps?
Another segment that benefits from travel demand is airlines and as it turns out, companies like Southwest (NYSE:(LUV - Free Report) – Free Report) also share the terror and Brexit issues. They are also saddled with rising labor costs and declining air fares.
Low oil prices have been a positive, however -- on the one hand increasing consumer disposable income, and on the other supporting airlines profitability. It’s a different matter that capacity additions seem high in response to the rising demand, which is impacting air fares.
STR data for October 2016 indicates that occupancy rates are down In Europe, Middle East and Central/South America. Asia and the U.S. were flattish.
As far as the average daily rate (ADR, or "pricing") is concerned, there were declines everywhere except in the Americas.
Revenue per average room (revPAR) also wasn’t encouraging, declining in Europe, Middle East and Central/South America but flattish in Asia and up 1.9% in the U.S.
From the above, it appears that the domestic market is the best place to search for growth. But according to STR’s updated outlook for 2016 and 2017, things could be turning for the worse. The firm says that while growth in supply and demand will be in equilibrium in 2016 at 1.6%, demand will decelerate slightly to 1.5% next year with supply accelerating to 2.0%.
The occupancy rate will go from flat to down 0.5%. The supply-demand mismatch will also impact pricing for hoteliers. As a result, ADR growth will go from 3.1% to 2.8%, also impacting the RevPAR.
The numbers indicate that demand is not about to get stronger. And indeed, 2017 estimates for some hoteliers are trending down. Mariott for example saw a 6-cent decline in the last 30 days, with Hilton down 8 cents and Expedia down 18 cents. Other estimates can also start trending down in the coming days.
Is It All Bad News?
While growth isn’t expected to accelerate in the near term, the domestic market and China/Asia are likely to be moderately positive. So people already invested in the space may want to hang on. Here’s some more data that investors with a longer investment horizon may cheer at.
According to Director General and CEO of the International Air Transport Association (IATA), Alexandre de Juniac, “September’s growth in passenger demand was healthy. Importantly, this rebound from August weakness suggests that travel demand is showing its resilience in the aftermath of terror attacks.
"We must, of course, be ever-alert to the ongoing terror threat. And overall the industry is still vulnerable to being buffeted by rising geopolitical tensions, protectionist political agendas, and weak economic fundamentals. This will still be a good year for the airline industry’s performance, but our profitability will continue to be hard-won.”
Investors can find opportunities in both the fastest growing countries of China and India.
In China, there is a restriction on foreign ownership of aircraft and airports. But investment opportunity exists as parts suppliers to aircraft companies and designers of airports according to Dezan Shira and Associates.
The opportunity in India is opening up with the Modi government publishing the country’s first-ever Civil Aviation Policy allowing the privatization of airlines and up to 100% FDI in Indian airlines companies among other things. But the segment is necessarily heavily regulated because of its relation to national security and also heavily taxed. There is also mounting pressure for India to join the International Civil Aviation Organization (ICAO) that seeks to get member countries to offset the environmental impact of future air traffic growth. India has managed to stay out of this to date, if it decides to join, there can be cost escalation.
Travel can be for both business and leisure although a recent study from Priceline says that people are generally more open to mix the two these days, i.e. extend the business trip to enjoy the destination.
Also, McKinsey finds that business travel in Asia is rather different from other parts of the world. The world’s biggest business travel market with a 38% share worth a trillion dollars in annual spending is characterized by greater choice to individual travelers.
On the basis of a survey of 2,500 business travelers in China, India, Indonesia, Japan and Singapore and interviews of 19 corporate-travel managers, the study finds that 69% of respondents are able to choose their airlines, either from a preapproved list or without restrictions of which 11% have no constraints on either provider or price. Similarly, 74% of respondents said they have the same degree of freedom in picking a hotel, of which 9% said they have no restrictions whatsoever.
On the other hand, companies at times incentivize employees to accept cheaper travel options. So the distinction between business and leisure type travel is less evident here. Business travelers in Asia generally prefer convenience over all else and are therefore very inclined to order online using mobile devices and through online booking agents.
According to the latest Visa-sponsored GBTA BTI Outlook – China 2016 H1, China has overtaken the U.S. as the largest business travel market in the world. Moreover, it is also one of the fastest growing (10.1% growth in 2016 followed by 9.8% growth in 2017). Domestic spend is 95% of total spend. The report also mentions the estimated U.S. growth rate for 2016 of 1.9%.
The GBTA BTI Outlook – India report says that the country is currently the 10th largest business travel market in the world, forecasted to grow 10.7% this year and 10.2% in 2017 and assume the sixth position by 2019. Domestic spending will grow 11.5% and 10.3% in 2016 and 2017, respectively. Outbound travel will be slower, growing a respective 3.1% and 9.0%.
According to the Visa-sponsored GBTA BTI Outlook – Western Europe, the region will see 6.3% growth in 2016 followed by 6.8% growth in 2017. Germany leads the region and in addition to the UK, will see higher growth rates.
The travel market has few good opportunities at the moment (Instead see: the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here ). But it isn’t all doom and gloom either. If you’re in the segment for the longer-term, it makes sense to hold on. But this isn’t the time to make fresh investments and a wait-and-see approach to Asian opportunities may be a good idea.
Where Do Zacks' Investment Ideas Come From?
You are welcome to download the full, up-to-the-minute list of 220 Zacks Rank #1 "Strong Buy" stocks free of charge. There is no better place to start your own stock search. Plus you can access the full list of must-avoid Zacks Rank #5 "Strong Sells" and other private research. See the stocks free >>
Today, Zacks is promoting its ''Buy'' stock recommendations. Get #1 Stock of the Day pick for free.
About Zacks Equity Research
Zacks Equity Research provides the best of quantitative and qualitative analysis to help investors know what stocks to buy and which to sell for the long-term.
Continuous coverage is provided for a universe of 1,150 publicly traded stocks. Our analysts are organized by industry which gives them keen insights to developments that affect company profits and stock performance. Recommendations and target prices are six-month time horizons.
Strong Stocks that Should Be in the News
Many are little publicized and fly under the Wall Street radar. They're virtually unknown to the general public. Yet today's 220 Zacks Rank #1 "Strong Buys" were generated by the stock-picking system that has nearly tripled the market from 1988 through 2015. Its average gain has been a stellar +26% per year. See these high-potential stocks free >>.
Get the full Report on MAR - FREE
Get the full Report on HLT- FREE
Get the full Report on PCLN - FREE
Get the full Report on EXPE - FREE
Get the full Report on LUV - FREE
Follow us on Twitter: https://twitter.com/zacksresearch
Join us on Facebook: https://www.facebook.com/home.php#/pages/Zacks-Investment-Research/57553657748?ref=ts
Zacks Investment Research is under common control with affiliated entities (including a broker-dealer and an investment adviser), which may engage in transactions involving the foregoing securities for the clients of such affiliates.
Zacks Investment Research
800-767-3771 ext. 9339
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss.
This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.