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 return when the pandemic strikes. withdraw.
For nearly a year, money managers have largely looked at past earnings in the travel and leisure sector, where coronavirus-blocked blockages and travel restrictions have affected companies’ businesses and crushed stock prices: Marriott shares and Norwegian Cruise Lines for example, they have fallen 12% or more in the last year, compared to a gain of almost 17% for the S&P 500 by Friday afternoon.
Next week’s numbers, however, can provide clues as to which companies have the best financial health and would benefit most from economic reopening, while allowing investors to better assess where companies should be valued.
“The overall results will be bad, but it will be about who will return,” said Adam Trivison, portfolio manager at Gabelli Funds.
The focus on tourism and leisure companies comes as investors more broadly assess the effectiveness of the U.S. vaccination effort and the degree to which it will help the economy get back on track.
The White House announced on February 2 that it will begin delivering vaccines directly to retail pharmacies, along with regular deliveries to states, increasing weekly supplies of photos to 11.5 million. About 10.5% of the US population by February 11 had received at least one of the two photos needed for full vaccination, according to the Centers for Disease Control and Prevention.
Will Hilkert, portfolio manager of the Fidelity Select Leisure fund, said the earnings results in the next two quarters will serve as a check for investors who have bet on the leisure sector as a game for the reopening of the economy.
“In the next six to nine months, you will have the chance to make sure that what you think the world will look like after the pandemic is associated with the company’s foundations,” he said.
Hilton Worldwide Holdings Inc and Hyatt Hotels Corp are waiting for their results on February 17, followed by Marriott, Norwegian Cruise Lines and TripAdvisor on February 18.
Trivison of Gabelli Funds said it would pay attention to hotel bookings at group meetings, which it is expected to provide clues about the extent of employee travel next week. Business travelers typically account for 25% of a hotel chain’s customers, although this number may be higher in destinations such as Orlando and Las Vegas.
Historically high ratings in the hospitality industry may give potential investors a break before buying at current levels, said Daniel Kane, a portfolio manager at Artisan Partners who bought shares of Marriott as its shares collapsed. in March and April.
Most stocks in the hospitality industry are now trading based on estimates of their 2023 results, pushing their current valuations well above their long-term averages, said Robin Farley, an analyst at UBS.
Marriott, for example, trades at a final price up to multiple gains of 240.7, while Hilton is currently unprofitable, but trades with its 515.7 gains in the current fiscal year, according to Refinitiv data.
In the meantime, cruise lines will not be expected to become profitable again until 2022, when most international travel restrictions should be eased. The Norwegian, for example, trades 35.2 times its estimated earnings in 2022, while Royal Caribbean trades 40.4 times its estimated earnings in 2022, according to Refinitiv. Marriott traded at a final P / E of about 16, before the introduction of large-scale economic restrictions in March.
Chris Terry, portfolio manager at Hodges Funds, analyzed a position in Norwegian after the company’s shares rallied following vaccine approvals. It is now looking for the company to show an incremental improvement in its future revenue ratio to confirm that the business is back.
“Coming back a year ago, quarterly earnings were virtually irrelevant,” he said. “Now we want to see that there is progress on the timing to bring revenue back to where it was in a significant way.”
Reporting by David Randall; Edited by Ira Iosebashvili and Nick Zieminski