The travel sector is anticipated to experience a surge in the upcoming years despite prevailing economic and geopolitical uncertainties, owing to the pent-up demand for leisure travel and consumer-focused advancements.
Amid this backdrop, investors could consider adding promising travel stocks, Cathay Pacific Airways Limited (CPCAY), Travel + Leisure Co. (TNL), and trivago N.V. (TRVG), to their portfolio. Before exploring the fundamentals of these stocks, let's first understand what's shaping the travel industry's prospects.
Despite significant economic and geopolitical challenges, the World Travel & Tourism Council (WTTC) is anticipating a promising expansion in the travel and tourism sector. The global economic contribution is expected to reach an all-time high of $11.10 trillion in 2024. Moreover, Economic Impact Research (EIR) predicts that the travel sector worldwide will likely increase by $770 billion this year, surpassing its previous records.
The travel industry is continuously evolving, thanks to the integration of technologies like artificial intelligence, biometrics, and blockchain, enhancing efficiency, security, and the overall travel experience. Travelers are looking for personalized and experiential travel experiences, a rise in tailored travel experiences, unique accommodations, and immersive cultural experiences.
Digital experience platform development has fueled the usage of interactive websites and mobile apps, offering customers personalized apps, enhancing their experience and streamlining expenses by managing various digital channels. Therefore, the online sales are expected to account for 76% of the total revenue in the travel & tourism sector by 2028.
The rise in disposable income, increasing air travel demand, increasing investments, affordable transportation and easy accessibility, and new travel trends have significantly augmented the travel market. The global travel and tourism market is projected to hit $972.50 billion by 2031, exhibiting a CAGR of 5.3%. In addition, due to travel surges, the hotels segment is expected to account for $446.50 billion in revenue for 2024 as the largest market within the Travel & Tourism sector.
With these favorable trends in mind, let's delve into the fundamentals of the three travel stocks.
Cathay Pacific Airways Limited (CPCAY)
Headquartered in Lantau Island, Hong Kong, CPCAY offers international passenger and air cargo transportation services. It engages in the property investment and travel reward program, operates as a travel tour operator, and provides financial, aircraft acquisition facilitation, airline catering, information processing, aircraft ramp handling, and cargo terminal services.
CPCAY's trailing-12-month CAPEX/Sales of 7.20% is 148.7% higher than the industry average of 2.89%. Similarly, its trailing-12-month net income margin and levered FCF margin of 10.36% and 20.86% are 72.2% and 228.3% higher than the industry averages of 6.02% and 6.35%, respectively.
For the fiscal year that ended December 31, 2023, CPCAY's total revenue and operating profit stood at $12.11 billion and $1.94 billion, up 85.1% and 335.7% year-over-year, respectively.
For the same year, its underlying profit attributable to shareholders of CPCAY and earnings per ordinary share came to $982 million and 16.10 cents, respectively compared to underlying loss attributable to shareholders of CPCAY and loss per ordinary share of $849 million and 14.40 cents in the previous year.
Street expects CPCAY's fiscal 2024 revenue to increase 18.6% year-over-year to $14.32 billion. CPCAY has gained 11.6% over the past year, closing the last trading session at $5.21.
CPCAY's POWR Ratings reflect this positive outlook. It has an overall rating of A, equating to a Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
CPCAY has a B grade for Growth, Value, Stability, and Quality. It is ranked first out of 26 stocks in the Airlines industry. Click here to see CPCAY's Momentum and Sentiment ratings.
Travel + Leisure Co. (TNL)
TNL provides hospitality services and travel products in the U.S. and internationally. The company operates in two segments: Vacation Ownership, and Travel and Membership.
On June 10, 2024, TNL's Club Wyndham partnered with SeaWorld during its 60th Anniversary to introduce a custom designed suite at the Club Wyndham Bonnet Creek resort in Orlando, Florida.
On May 7, 2024, TNL announced that it partnered with American competitive swimmer, Katie Grimes, as her official travel and hospitality partner ahead of the Summer Olympic Games in Paris.
TNL's trailing-12-month EBIT margin of 20.02% is 161.6% higher than the industry average of 7.65%. Likewise, its trailing-12-month Return on Total Capital and Return on Total Assets of 9.80% and 5.67% are 56.8% and 35.7% higher than the industry averages of 6.25% and 4.18%, respectively.
TNL's net revenues for the fiscal first quarter that ended March 31, 2024, increased 4.2% year-over-year to $916 million. Its adjusted EBITDA grew 3.8% from the year-ago quarter to $191 million. In addition, its adjusted net income amounted to $69 million. Also, its adjusted EPS rose 9% over the prior-year quarter to $0.97.
For the quarter ending June 30, 2024, TNL's EPS and revenue are expected to increase 6.4% and 4% year-over-year to $1.42 and $987.19 million, respectively. It surpassed consensus EPS estimates in each of the trailing four quarters, which is impressive. The stock has gained 20.4% over the past six months to close the last trading session at $45.73.
TNL's strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, equating to Buy in our proprietary rating system.
It has a B grade for Value. It is ranked #3 out of 19 stocks in the Travel - Hotels/Resorts industry. Get TNL's Growth, Momentum, Stability, Sentiment, and Quality ratings here.
trivago N.V. (TRVG)
Headquartered in Düsseldorf, Germany, TRVG operates a hotel and accommodation search platform in the U.S., Germany, the United Kingdom, Canada, Japan, and internationally.
TRVG's trailing-12-month gross profit margin of 97.51% is 95.5% higher than the industry average of 49.89%. Its trailing-12-month asset turnover ratio of 0.93x is 87.2% higher than the industry average of 0.50x.
For the fiscal first quarter that ended March 31, 2024, TRVG's total revenue, and cash, cash equivalents, and restricted cash at the end of the period stood at €101.43 million ($109.37 million) and €120.08 million ($129.49 million), respectively. Moreover, its total other income increased 5.1% over the prior-year quarter to €841 thousand ($906.85 thousand).
As of March 31, 2024, TRVG's accounts receivable amounted to €25.84 million ($27.86 million), compared to €19.09 million ($20.59 million) as of December 31, 2023.
Analysts expect TRVG's revenue for the quarter ending September 30, 2024, to increase 5.8% year-over-year to $176.42 million. Over the past month, the stock has gained 3.3%, closing the last trading session at $2.20.
TRVG's POWR Ratings reflect its robust prospects. It has an overall B rating, equating to Buy in our proprietary rating system.
TRVG has a B grade for Value and Quality. Within the B-rated Internet industry, it is ranked #18 out of 51 stocks. Click here for the additional POWR Ratings of TRVG (Growth, Momentum, Stability, and Sentiment).
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CPCAY shares were trading at $5.20 per share on Thursday afternoon, down $0.01 (-0.19%). Year-to-date, CPCAY has gained 4.87%, versus a 14.44% rise in the benchmark S&P 500 index during the same period.
About the Author: Neha Panjwani
From her school days, Neha harbored a profound fascination for finance, a passion that steered her toward a career as an investment analyst following the completion of her bachelor's degree in commerce. Currently enrolled in the CFA program, Neha is dedicated to further enriching her comprehension of investment fundamentals. Neha's primary objective is to aid retail investors in discerning optimal investment opportunities by diligently evaluating crucial aspects of financial instruments, with a primary focus on stocks and ETFs. Her commitment lies in empowering individuals to make informed and strategic investment decisions in the dynamic world of finance.
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