The travel sector has rebounded since the covid pandemic wound down.
“We’re seeing probably even more travelers now on the leisure side than what we saw pre-pandemic,” says Dave Sekera, Morningstar’s chief U.S. market strategist.
As for business travel, “we think it’s probably around 80% to 85% of where it was pre-pandemic,” he said. And “we expect that over time it will continue recuperate and get back to pre-pandemic levels.”
With the industry strengthening, Sekera cited three of Morningstar’s favorite travel stocks. The firm’s analysts see all three as undervalued.
Wyndham Hotels & Resorts
(WH) -)
Morningstar moat (durable competitive advantage) rating: narrow. Morningstar fair value estimate: $89. Wednesday’s closing price: $73.30.
Wyndham’s moat is driven by an intangible asset advantage – the company’s brand, said Morningstar analyst Dan Wasiolek. You may be familiar with some of its hotel brands, such as Days Inn and Ramada.
But you may not know that “a lot of Wyndham’s portfolio is [close] off the Interstate highways,” he said. “That’s hugely important in the next several years, as the U.S. invests to upgrade roads and bridges.”
Those working on that Infrastructure need to stay at hotels along highways, Wasiolek noted. “In fact, about 20% of Wyndham’s room nights already are used for these infrastructure workers, and we think that’s going to be a driver in the next several years.”
Expedia
(EXPE) -)
Morningstar moat rating: narrow. Morningstar fair value estimate: $175. Wednesday’s closing price: $116.05.
This moat is driven by a network advantage, Wasiolek said. Expedia supplies just about any type of travel that someone could search for on its platform, he said. “And because it has a plethora of this supply, it generates a lot of user activity. That’s really the source of that network advantage.”
In the last couple years, Expedia has invested to improve its technology, loyalty, and the utilization of its data capabilities, Wasiolek said.
“And we think that, because it’s been focused on that, its recovery rate has been strong,” he said. He expects earnings growth in the low double-digit percentages over the next two years.
Carnival
(CCL) -)
Morningstar moat rating: none. Morningstar fair value estimate: $22. Wednesday’s closing price: $18.20.
“From a near-term perspective, what supports our thesis is that data [indicate] the brand is resonating with consumers still,” said Morningstar analyst Jaime Katz. “So, pricing levels are really strong. They are encroaching on 2019 levels, and will surpass 2019 levels next year, I think.”
As a result, she has confidence that the business is on a trajectory to a “normalized earnings level.” In terms of the macro perspective, “consumers are really exhibiting that they prefer experiences over things,” Katz said.
And looking at Carnival, “we think it’s a really unique position because it has very measured capacity growth,” she said. “So spending on new hardware will be limited over the next few years. They are working very hard to control costs.”
