Learn To Invest
Stocks Special Reports LICs Credit Funds ETFs Tools SMSFs
Video Archive Article Archive
News Stocks Special Reports Funds ETFs Features SMSFs Learn
About

News

Travel stocks gear up for the northern hemisphere summer

Susan Dziubinski  |  08 Jul 2021Text size  Decrease  Increase  |  
Email to Friend

Many Americans hit the road, took to the skies or even set sail on Independence Day weekend. In fact, US travel agency AAA estimates that nearly 48 million Americans will have travelled over the July 4 holiday, representing a 40% increase on last year. 

On a recent Morningstar podcast, three stock analysts shared their outlooks for travel-related stocks as Covid-19 vaccines have become more widely available and many travel restrictions have been lifted. They also discussed opportunities - or a lack thereof - among the travel-related stocks they cover.

While many of these stocks are based in the US, companies like Expedia (EXPE), Carnival (CCL) and Airbnb (ABNB) have global operations and are used by tourists across the world. While British travellers are under much tougher restrictions, the UK Government is considering relaxing quarantine rules for passengers who have had both coronavirus vaccines. This opens up the prospect of travel for millions after being grounded last year. Because the US is ahead of Europe in both vaccination rollout and re-opening, European travel firms will be watching trends in the United States closely.

Travel stocks table

 

Airlines

Analyst Burkett Huey notes that domestic leisure travel has expanded dramatically in the United States as more people get vaccinated and the airlines are hoping to capitalise. The big question, says Huey, is how much demand is coming back this summer and where’s it going? That’ll help determine when the airlines, which carry a lot more debt today than they did going into the coronavirus pandemic, can return to profitability. Business travel remains well below 2019 levels. We need to see the return of large conventions, argues Huey, and it remains to be seen what impact remote client meetings will have on the rest of the business travel segment. Lastly, international travel remains well below 2019 levels.

Given today’s travel picture, Huey thinks Southwest (LUV) is the best positioned among the US airlines he covers, given that its focus is nearly entirely domestic leisure travel. The stock is slightly undervalued according to our metrics. Huey warns, however, that other airlines are about fairly valued. “I think the market has given airlines a lot of credit for reopening and a travel recovery,” he concludes.

Cruise Lines

Investing Compass
Listen to Morningstar Australia's Investing Compass podcast
Take a deep dive into investing concepts, with practical explanations to help you invest confidently.
Investing Compass

Senior analyst Jaime Katz explains that fleets are beginning to return to the seas with many new protocols in place, including lower initial ship capacities, servers working buffets, limited attendance at programmes and shows onboard, ventilation and air conditioning updates, and enhanced cleaning protocols, as well as Covid-19 testing plans and mandatory vaccines for at least a certain percentage of travellers and crew. “These efforts are really above and beyond any efforts implemented by other travel industries,” she adds. “The cruise lines are really trying to create a safe bubble for their passengers.” Katz suggests that the added costs of ongoing Covid-19 protocols,which could remain intact once the virus subsides, could slow margin recovery.

Should investors therefore set sail with cruise line stocks? According to our metrics, these stocks are overpriced today. Instead, Katz suggests playing the travel/leisure theme with outdoor lifestyle names that, like cruise lines, benefit from higher employment and savings rates among consumers –and that are seeing a healthy backlog of orders that supports the shipment demand ahead. Malibu Boats (MBUU) and Polaris (PII) are two top ideas that are undervalued.

Online Travel

Senior analyst Dan Wasiolek observes that Airbnb (ABNB) has become a noun and a verb in our society today: the pandemic preference for local road travel and the ability to work remotely from almost anywhere allowed Airbnb’s bookings and stock price to skyrocket. We expect Airbnb to grow at a healthy clip over the next decade, but we think investors should wait for even more of a pullback in price before buying. “At the current share price, investors are pricing in too much exuberance for long-term revenue growth and operating margin expansion,” he concludes.

Most online travel companies are overvalued, but Wasiolek sees opportunity with undervalued Sabre (SABR). He points out that because the company is more exposed to corporate air travel, which will recover later, the stock may experience some volatility moving forward. Interested investors therefore need to be patient with the name.

is director of content for Morningstar.com.

© 2021 Morningstar, Inc. All rights reserved. Neither Morningstar, its affiliates, nor the content providers guarantee the data or content contained herein to be accurate, complete or timely nor will they have any liability for its use or distribution. This information is to be used for personal, non-commercial purposes only. No reproduction is permitted without the prior written consent of Morningstar. Any general advice or 'regulated financial advice' under New Zealand law has been prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), or its Authorised Representatives, and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, without reference to your objectives, financial situation or needs. For more information, refer to our Financial Services Guide (AU) and Financial Advice Provider Disclosure Statement (NZ). Our publications, ratings and products should be viewed as an additional investment resource, not as your sole source of information. Morningstar’s full research reports are the source of any Morningstar Ratings and are available from Morningstar or your adviser. Past performance does not necessarily indicate a financial product's future performance. To obtain advice tailored to your situation, contact a licensed financial adviser. Some material is copyright and published under licence from ASX Operations Pty Ltd ACN 004 523 782. The article is current as at date of publication.

Email To Friend