With significant pent-up travel demand, stocks like Travel + Leisure Co. (TNL), Target Hospitality Corp. (TH), and InterContinental Hotels Group PLC (IHG) could be solid portfolio additions this September. Before delving into the fundamentals of these travel stocks, let’s first understand the industry landscape better.
Post-pandemic wanderlust has led international travel to reach around 90% of pre-pandemic levels this year, as per the International Air Transport Association. Moreover, according to travel tech firm Amadeus’ survey, 47% of respondents said international travel was a high-priority discretionary spending category for 2023 and 2024, underscoring robust travel demand for the following year.
The travel and tourism market is expected to reach $854.70 billion in revenue by 2023, with hotels being the largest segment at $410 billion.
The hospitality industry is set to benefit from people’s growing travel appetite. Nowadays, the industry uses advanced technologies to enhance customer experiences. The global hotel and other travel accommodation market is expected to grow to $1.05 trillion in 2027 at a CAGR of 5.5%.
With all that being said, let’s look into the Travel - Hotels/Resorts stock fundamentals, starting with the third one.
Stock #3: Travel + Leisure Co. (TNL)
TNL offers hospitality services globally, focusing on two segments: Vacation Ownership, involving the sale of vacation ownership interests and property management; and Travel and Membership, encompassing various travel businesses, technology platforms, memberships, and rental services, including private-label booking solutions.
On August 9, the board of directors of TNL declared a regular cash dividend on the company's common stock of $0.45 per share, payable to shareholders on September 29, 2023. Its annual dividend of $1.80 yields 4.57% on prevailing prices. Its dividend payouts have grown at a 6.7% CAGR over the past five years.
Earlier in July, TNL completed a $300 million term securitization transaction involving the issuance of asset-backed notes with varying coupons, enhancing its liquidity position and showcasing investor demand.
Net revenues of TNL increased 2.9% year-over-year to $949 million for the fiscal second quarter that ended June 30, 2023. Operating income amounted to $183 million, while adjusted earnings per share increased 4.7% from the prior-year quarter to $1.33. TNL’s adjusted EBITDA also increased 2.6% from a year-ago value to $236 million.
The consensus revenue estimate of $981.77 million for the third quarter (ending September 2023) represents a 4.8% increase year-over-year. The consensus EPS estimate of $1.50 for the current quarter indicates a 17% improvement year-over-year. The company has an impressive surprise history, surpassing the consensus EPS estimates in three of the trailing four quarters.
The stock has gained 8.1% year-to-date and 7.7% over the past nine months to close the last trading session at $39.35.
TNL’s POWR Ratings reflect its solid outlook. The stock has an overall rating of B, which equates to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
TNL has a B grade for Value, Momentum, and Quality. It is ranked #8 out of 22 stocks in the B-rated Travel - Hotels/Resorts industry. Click here to see the other ratings of TNL for Growth, Stability, and Sentiment.
Stock #2: Target Hospitality Corp. (TH)
TH is a specialty rental and hospitality services company, offering accommodation units and a range of services to government entities, government contractors, natural resource development firms, and energy infrastructure companies. Its services include catering, maintenance, security, and more.
On April 17, TH acquired strategic assets to bolster its capacity in support of the U.S. government's humanitarian aid mission, aiming to address the increased demand for housing following anticipated changes in immigration policies in May 2023. This move aligns with the company's strategy to expand its presence across government agencies and meet growing government-related demand.
TH’s revenue for the fiscal second quarter (ended on June 30, 2023) increased 31% year-over-year to $143.63 million. The operating income improved 71.2% year-over-year to $64.76 million. TH’s net income stood at $46.45 million and $0.44 per share, registering improvements of 103.3% and 83.3% from the prior-year quarter.
TH’s EPS is estimated to increase 32.1% year-over-year to $0.43 for the fiscal third quarter ending in September 2023. For the fiscal year 2023, EPS is expected to improve 62.2% year-over-year to $1.60, while the revenue is projected to reach $552.47 million, up 10.1% year-over-year. Additionally, it topped the revenue estimates in each of the trailing four quarters.
The stock has gained 26.6% over the past year and 20.5% over the past month to close the last trading session at $15.54.
TH’s robust prospects are reflected in its POWR Ratings. It has an overall rating of B, which translates to Buy in our proprietary rating system.
TH also has a B grade for Growth and Quality. It is ranked #7 in the same industry. Click here to see the other ratings Of TH for Value, Momentum, Stability, and Sentiment.
Stock #1: InterContinental Hotels Group PLC (IHG)
IHG is a global hotel company headquartered in Windsor, United Kingdom, operating various hotel brands worldwide and offering the IHG Rewards loyalty program. The company operates hotels under notable brand names, including Six Senses, Regent, InterContinental Hotels & Resorts, and Vignette Collection.
In August, IHG launched Garner™ - an IHG Hotel, a new midscale conversion brand designed for value-driven travelers seeking affordable and quality stays. The brand aims to meet owner and guest expectations in the midscale segment, offering a flexible conversion approach and leveraging IHG's global scale and resources.
For the six-month period that ended on June 30, 2023, IHG’s total revenue increased 24.1% year-over-year to $2.23 billion, while its operating profit increased 61.8% year-over-year to $584 million. Adjusted earnings stood at $316 million, increasing 41.1% from the year-ago value, while adjusted earnings per ordinary share improved 50% from the prior-year period to 182.70¢.
For the fiscal year 2023 (ending in December), EPS is estimated to grow 24.7% year-over-year to $3.52, while revenue is projected to reach $2.10 billion, registering a 14.1% increase year-over-year.
IHG’s shares have gained 31.8% year-to-date and 6.5% over the past month, closing the last trading session at $76.88.
IHG’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which translates to Buy in our proprietary rating system. It has a B grade for Growth, Momentum, Sentiment, and Quality.
Within the same industry, it is ranked #4. Click here to view IHG’s ratings for Value and Stability.
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IHG shares were trading at $76.76 per share on Thursday afternoon, down $0.12 (-0.16%). Year-to-date, IHG has gained 34.35%, versus a 17.20% rise in the benchmark S&P 500 index during the same period.
About the Author: Anushka Dutta
Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research.
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