NEW YORK (Reuters) – Investors are looking at next week’s earnings reports from hotels, cruise lines and other companies that have been hit hard by COVID-19 to indicate which companies could be the first to recover when the pandemic recedes.
For nearly a year, money managers have largely analyzed past gains in the travel and leisure sector, where coronavirus-powered closures and travel restrictions have hurt companies ’businesses and crushed prices. equities: Marriott and Norwegian Cruise Lines shares, for example, have fallen 12% or more over the past year, compared to a nearly 17% increase for the S&P 500 through Friday afternoon.
However, next week’s figures may provide clues as to which companies have the best financial health and would benefit most from economic reopening, while allowing investors to better measure where companies should be valued.
“The overall results will be bad, but it will really be about who will come back,” said Adam Trivison, portfolio manager at Gabelli Funds.
The focus on travel and leisure businesses comes as investors more broadly measure the effectiveness of the vaccination effort in the United States and the degree to which it will help the economy get back on track.
The White House announced Feb. 2 that it will begin shipping vaccines directly to retail pharmacies along with regular shipments to states, increasing weekly shooting supplies to $ 11.5 million. Approximately 10.5% of the U.S. population by February 11 had received at least one of the two shots needed for full vaccination, according to estimates from the Centers for Disease Control and Prevention.
Will Hilkert, portfolio manager of the Fidelity Select Leisure fund, said the earnings results over the next two quarters will serve as a gut test for investors who had bet on the leisure sector as a game to reopen the economy.
“Over the next six to nine months you will have the opportunity to make sure that what you believe the world will have after the pandemic is matched by the company’s fundamentals,” he said.
Hilton Worldwide Holdings Inc and Hyatt Hotels Corp are expected to release their results on February 17, followed by Marriott, Norwegian Cruise Lines and TripAdvisor on February 18.
Trivison, of Gabelli Funds, said he will be watching hotel reservations at the group meeting company, which hopes to offer clues on the scale of employee travel next week. Business travelers typically account for 25% of a hotel chain’s customers, although that number may be higher in destinations such as Orlando and Las Vegas.
Historically high ratings in the hospitality industry may pause some potential investors before buying at current levels, said Daniel Kane, portfolio manager at Artisan Partners who bought shares of Marriott as its shares fell in March. and last April.
Now, most stocks in the hospitality industry are trading based on estimates of their 2023 earnings, which makes their current valuations exceed their long-term averages, said Robin Farley, UBS analyst .
Marriott, for example, is trading at a final price up to a profit multiple of 240.7, while Hilton is currently unprofitable, but is trading at 515.7 full-year revenue for the current fiscal year, according to Refinitiv data.
Meanwhile, cruise lines are not expected to be widely profitable again until 2022, when most international travel restrictions will have to be eased. Norwegian, for example, is trading at 35.2 times its estimated profits for 2022, while Royal Caribbean is trading at 40.4 times its estimated earnings in 2022, according to Refinitiv. Marriott was trading at a final P / E of approximately 16 before widespread economic constraints were put in place in March.
Chris Terry, portfolio manager at Hodges Funds, has been regaining a position in Norwegian after the company’s shares met after vaccine approvals. He is now looking at the company to show an incremental improvement in its next profit report to confirm that the business is recovering.
“Going back a year ago, quarterly earnings were basically irrelevant,” he said. “Now we want to see that there are advances in the calendar to get revenue back to where it was in a significant way.”
Report by David Randall; Edited by Ira Iosebashvili and Nick Zieminski