Despite the prevailing economic and geopolitical uncertainties, the travel industry’s outlook appears highly promising, owing to the pent-up demand for travel.
Amid this backdrop, it could be wise to scrutinize some significant driving forces behind this positive prognosis and explore the potential benefits of adding travel stocks Travel + Leisure Co. (TNL), The Marcus Corporation (MCS), and Bluegreen Vacations Holding Corporation (BVH) to one’s portfolio now.
With the easing of the pandemic-associated travel constraints, the travel industry has witnessed a consistent operational revival. According to the International Air Transport Association, this year, the seemingly insatiable post-pandemic desire for travel has led international travel to spur over 90% of its pre-pandemic level.
Moreover, the World Travel & Tourism Council’s (WTTC) data showed a promising expansion in the travel and tourism sector of 22% annually, reaching $7.7 trillion last year despite significant economic and geopolitical challenges. It accounted for nearly 7.6% of the global economy in 2022, representing the highest industry contribution to the world economy since 2019.
The WTTC's 2023 Economic Impact Research (EIR) predicts that the travel sector worldwide will likely reach $9.5 trillion this year, with 34 countries already surpassing their respective 2019 levels.
As per travel tech firm Amadeus’ survey, 47% of respondents considered international travel to be a high-priority discretionary spending area, indicating strong travel demand for the forthcoming year.
Despite economic uncertainty and dwindling household savings, total travel expenditure has managed to stay at 1.2% above last year's figures for the third consecutive month and was up 4.1% year-to-date through July 2023, with air travel demand up 12% year-over-year in July. As per Statista, revenue in the travel and tourism market worldwide is projected to reach $1.02 trillion by 2027, growing at a CAGR of 4.4%.
Furthermore, there is a growing recognition of leisure travel’s capacity to augment individuals' physical, mental, and emotional well-being. Consequently, the global leisure travel market is expected to reach $1.74 trillion by 2028, growing at a CAGR of 22.6%.
Given the industry tailwinds, it's time to examine the fundamentals of the top three stocks to watch in the B-rated Travel – Hotels/Resorts industry, starting with the third in line.
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 September 20, TNL acquired the rights to the vacation ownership business of Sports Hospitality Ventures, LLC, and introduced a new concept for a network of future sports-themed resort and lifestyle complexes located in popular college towns near universities with devoted fan bases.
On August 9, TNL’s board of directors 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 4.96% on prevailing prices. Its four-year average dividend yield is 3.85%. The company’s dividend payouts have grown at a CAGR of 4.9% 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.
TNL’s trailing-12-month cash from operations of $322 million is 43.9% higher than the industry average of $233.80 million. Its trailing-12-month gross profit and EBIT margins of 48.24% and 19.15% are 36.1% and 158% higher than the industry averages of 35.45% and 7.42%, respectively.
TNL’s net revenues increased 2.9% year-over-year to $949 million for the fiscal second quarter that ended June 30, 2023, while its operating income amounted to $183 million. Its adjusted net income stood at $100 million, and 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 and EPS estimates of $981.77 million and $1.50 for the fiscal third quarter (ending September 2023) represent 4.8% and 17% increases year-over-year, respectively. The company has an impressive surprise history, surpassing the consensus EPS estimates in three of the trailing four quarters.
The stock has gained marginally over the past year to close the last trading session at $35.78.
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.
Beyond what we have highlighted above, one can see TNL’s other ratings for Growth, Stability, and Sentiment here.
Stock #2: The Marcus Corporation (MCS)
MCS owns and operates movie theatres, hotels, and resorts in the United States. The company’s Theatres segment operates multiscreen motion picture theatres and Funset Boulevard, a family entertainment center under the Big Screen Bistro, Big Screen Bistro Express, BistroPlex, and Movie Tavern by Marcus brand names.
On September 15, MCS’ paid its shareholders a regular quarterly dividend of $0.07 per share of common stock, a 40% increase from the prior dividend of $0.05. It pays a $0.28 per share dividend annually, translating to a 1.84% yield on the current share price. Its four-year average dividend yield is 1.25%.
MCS’ trailing-12-month Capex/Sales of 5.44% is 35.3% higher than the 4.02% industry average. Likewise, its trailing-12-month asset turnover ratio of 0.60x is 23.6% higher than the 0.48x industry average.
For the fiscal second quarter that ended June 29, 2023, MCS’ total revenue increased 4.3% year-over-year to $207.01 million, while operating income increased 10.1% from the prior-year quarter to $20.81 million.
Also, its net earnings rose 50.3% year-over-year to $13.47 million, while its earnings per common share stood at $0.35, representing an increase of 45.8% year-over-year. In addition, its adjusted EBITDA increased 3.7% over the prior-year quarter to $38.70 million.
For the fiscal third quarter ending September 2023, analysts expect MCS’s revenue and EPS to increase 5.6% and 95% year-over-year to $193.95 million and $0.20, respectively. It surpassed the consensus revenue estimates in each of the trailing four quarters.
The stock has gained 12% over the past year to close the last trading session at $15.49. Over the past three months, it gained 6.8%.
Unsurprisingly, MCS has an overall rating of B, translating to a Buy in our proprietary rating system. It has a B grade for Growth, Momentum, and Quality. MCS is ranked #5 in the Travel – Hotels/Resorts industry.
To see the additional ratings of MCS for Value, Stability, and Sentiment, click here.
Stock #1: Bluegreen Vacations Holding Corporation (BVH)
BVH operates as a vacation ownership company. The company markets and sells vacation ownership interests (VOI); and manages resorts in leisure and urban destinations, including Orlando, Las Vegas, Myrtle Beach, Charleston, and New Orleans.
On September 18, BVH’s shareholders were paid a quarterly dividend on its class A and class B common stock of $0.20 per share. It pays a $0.75 per share dividend annually, which translates to a 2.15% yield on the current share price.
Its four-year average dividend yield is 0.93%. The company’s dividend payouts have grown at a CAGR of 95% over the past three years and 39.6% over the past five years.
BVH’s trailing-12-month gross profit and EBITDA margins of 87.40% and 30.95% are 146.6% and 181.2% higher than the industry averages of 35.45% and 11.01%, respectively. Its trailing-12-month net income margin of 6.47% is 46.5% higher than the 4.42% industry average.
BVH’s total revenues for the fiscal second quarter that ended June 30, 2023, increased 10.6% year-over-year to $260.62 million. The company’s net income attributable to shareholders rose 23.2% year-over-year to $21.91 million, while its earnings per share stood at $1.34, representing an increase of 54% from the year-ago quarter. Also, its adjusted EBITDA surged 16.8% over the prior-year quarter to $45.31 million.
Street expects BVH’s revenue and EPS for the fiscal third quarter ending September 2023 to increase 1.7% and 12.6% year-over-year to $255.14 million and $1.35, respectively. It surpassed the consensus revenue and EPS estimates in each of the trailing four quarters.
Over the past year, the stock has gained 106.6% to close the last trading session at $35.54. The stock gained 41.2% over the past six months.
BVH’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, translating to a Buy in our proprietary rating system. It has an A grade for Sentiment and a B for Value and Momentum. The stock is ranked #2 within the same industry.
Click here for the additional BVH POWR Ratings (Growth, Stability, and Quality).
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TNL shares were trading at $35.45 per share on Wednesday afternoon, down $0.33 (-0.92%). Year-to-date, TNL has gained 0.84%, versus a 11.89% rise in the benchmark S&P 500 index during the same period.
About the Author: Sristi Suman Jayaswal
The stock market dynamics sparked Sristi's interest during her school days, which led her to become a financial journalist. Investing in undervalued stocks with solid long-term growth prospects is her preferred strategy. Having earned a master's degree in Accounting and Finance, Sristi hopes to deepen her investment research experience and better guide investors.
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