December 6, 2022

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Leisure Stocks Regain Strength as Travel Gathers Momentum

Despite rising prices, the travel sector is experiencing a rebound in customer demand. As the summer season begins and COVID-19 anxiety fades, people are getting set to travel again.

After one of the worst years for the travel business in 2020, some travel did return in 2021, although it was mostly by road. However, individuals appear to be eager to travel (both domestically and internationally) this year, and demand appears to be more of the normal kind, which is expected to surpass pre-pandemic levels.

The Travel Industry is Booming Once Again

Various studies demonstrate that the travel and tourism business is returning to pre-pandemic levels.

According to the World Travel and Tourism Council (WTTC), the travel and tourism industry could contribute $8.6 trillion to the global economy this year, which is just 6.4% down from pre-pandemic levels. However, it would be a huge improvement over the data from 2020, when the pandemic caused a 49.1% reduction in the industry.

Furthermore, we can see from the earnings report data that the airline corporations did quite well in the first quarter. When American Airlines (AAL) and Delta Air Lines (DAL) presented their quarterly earnings reports last month, both companies reported substantial year-over-year revenue growth. Furthermore, both airlines anticipate a positive second quarter, signaling continued strong growth in the future.

Given the foregoing and the fact that the economy is still strong, it’s likely not a bad idea to invest in consumer-facing stocks such as leisure and hospitality.

So, let’s take a look at two such leisure companies that have performed well in the first quarter and are anticipated to continue their winning streak in 2022.

Hyatt Hotels (H)

Hyatt is a hotel chain based in the United States. The firm is in the business of developing and managing resort and hotel chains.

The company’s growth is driven by its differentiated brand portfolio, robust expansion ambitions, and acquisition tactics.

Given a significant comeback in travel and spending, Hyatt posted an outstanding Q1. The quarterly revenues increased dramatically to $1.28 billion, up from $438 million in the last year. It also exceeded the consensus projection of $947.7 million. Meanwhile, the adjusted loss per share for the quarter was $0.33, better than the estimated loss of $0.43 per share.

In addition, CEO Mark Hoplamazian expressed confidence in Hyatt’s future prospects. He said, “We expect the rate of recovery to broaden and strengthen in the months ahead as evidenced by the strong pace of actualized and future bookings for business and group travel. Our outlook remains very optimistic for the remainder of the year with system-wide RevPAR in April accelerating further from March.”

Despite upbeat management comments, many investors are wary about the long-term viability of the recovery in light of rising U.S. interest rates, slowing Chinese GDP, and an uncertain macro environment.

Following the first quarter’s results, Deutsche Bank analyst Carlo Santarelli prefers to remain on the sidelines for the time being. At current levels, he believes the shares are reasonably valued. The analyst maintained a Hold rating on Hyatt and lowered the price target to $94 from $95.

On TipRanks, Hyatt Hotels has received a Hold consensus recommendation from Wall Street analysts. This is based on three Buys, five Holds, and one Sell rating assigned in the past three months. The stock is currently trading at $83.34, with the average Hyatt Hotels price target being $97.33, representing a gain of 19.4% from current levels.

Investors remain positive about Hyatt’s stock. According to TipRanks’ Stock Investors tool, 2% of the investors holding portfolios on TipRanks have increased their stake in H stock in the last 30 days.

Hilton Grand Vacations (HGV)

Hilton Grand Vacations engages in the marketing and sale of vacation ownership intervals in select vacation destinations.

With a market capitalization of $5.1 billion, the stock price has fallen over 18% year-to-date.

The company recently announced excellent first-quarter top-line growth. Revenues more than tripled year-over-year to $779 million, exceeding the $763.9 million forecast. However, earnings of $0.42 per share fell short of analysts’ expectations of $0.64 per share but were better than the $0.08 loss in Q1 2020.

Following the earnings announcement, Credit Suisse analyst Benjamin Chalken maintained a Buy rating on the stock and increased the price target to $84.00 from $83.00.

Apart from Chalken, other analysts also remain positive on Hilton Grand. On TipRanks, HGV has received a Strong Buy consensus recommendation from Wall Street analysts based on three unanimous Buys. The stock is currently trading at $42.29, with an average Hilton Grand Vacations price target of $72, representing a gain of 69.6% from current levels.

Furthermore, TipRanks’ Insider Trading tool shows that insider confidence in Hilton Grand is currently Positive, as corporate insiders bought $249.7k worth of shares in the last three months.

Wrapping It Together

People are eager to travel and vacation after two years of closures and international travel restrictions. As a result, travel and leisure stocks should experience a rapid return in the coming years, despite rising prices, China’s slowdown, and other macro uncertainties.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.