NEW YORK (Reuters) – Investors are looking at next week’s earnings reports from hotels, cruise lines and other companies that were hit hard by COVID-19 for indications of which companies might be the first to recover when the pandemic decrease.
For nearly a year, money managers have largely looked beyond earnings in the travel and leisure industry, where coronavirus-powered blocks and travel restrictions have hurt corporate businesses and crushed their stock prices: Marriott shares and Norwegian Cruise Lines, for example, fell 12% or more last year, compared with a gain of almost 17% for the S&P 500 through Friday afternoon.
Next week’s figures, however, may offer clues as to which companies are in the best financial position and would benefit most from the economic reopening, while allowing investors to better assess where companies should be valued.
“The overall results will be bad, but it will really depend on who is coming back,” said Adam Trivison, portfolio manager at Gabelli Funds.
The focus on travel 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 sending vaccines directly to retail pharmacies along with regular shipments to the states, increasing the weekly supply of vaccines to 11.5 million. Approximately 10.5% of the United States population as of February 11 has received at least one of the two vaccines required for complete vaccination, according to estimates from the Centers for Disease Control and Prevention.
Will Hilkert, portfolio manager of the Fidelity Select Leisure fund, said earnings results for the next two quarters will serve as a gut check for investors who bet on the leisure sector as a game in the reopening of the economy.
“In the next six to nine months, you will have a chance to be sure that the appearance of the world after the pandemic will be matched by the fundamentals of the company,” he said.
Hilton Worldwide Holdings Inc and Hyatt Hotels Corp are due to release their results on February 17, followed by Marriott, Norwegian Cruise Lines and TripAdvisor on February 18.
Gabelli Funds’ Trivison said he will keep an eye on hotel reservations in the group meeting sector, which he hopes to offer tips on the travel schedule of employees next week. Business travelers typically represent 25% of a hotel chain’s customers, although that number may be higher in destinations like Orlando and Las Vegas.
Historically high valuations in the hospitality sector may give some potential investors a break before buying at current levels, said Daniel Kane, portfolio manager at Artisan Partners who bought Marriott stock while its stock plummeted in March and April.
Most of the hospitality stocks are now trading based on their 2023 earnings estimates, pushing their current valuations well above their long-term averages, said Robin Farley, an analyst at UBS.
Marriott, for example, is traded at a later price for a profit multiple of 240.7, while Hilton is currently unprofitable, but trades its current fiscal year earnings at 515.7, according to data from Refinitiv.
Cruise companies, for their part, are unlikely to become largely profitable again until 2022, when most restrictions on international travel are expected to be eased. Norwegian, for example, trades at 35.2 times its estimated earnings for 2022, while Royal Caribbean trades at 40.4 times its estimated earnings for 2022, according to Refinitiv. Marriott was trading at a P / E of around 16, before widespread economic restrictions were put in place in March.
Chris Terry, a portfolio manager at Hodges Funds, is reducing a position at Norwegian after the company’s stock rebounded after vaccine approvals. He is now waiting for the company to show incremental improvements in its next earnings report to confirm that the business is recovering.
“Returning a year ago, quarterly earnings were basically irrelevant,” he said. “Now we want to see if there is progress on the schedule to get revenues back to where they were in a meaningful way.”
Reporting by David Randall; Editing by Ira Iosebashvili and Nick Zieminski