Sit Back and Relax as You Consider Three Hospitality Stocks
This week, we use AAII’s A+ Investor Stock Grades to provide insight into three hospitality stocks. With a cultural shift toward finding a better work-life balance, should you consider the three hospitality stocks of Carnival Corp. (CCL), Playa Hotels & Resorts N.V. (PLYA) and Travel + Leisure Co. (TNL)?
Hospitality Stocks Recent News
The hospitality industry is focused on providing consumers with the ability to participate in leisure activities, with a large portion of the industry consisting of hotels, cruises and restaurants. Hospitality services are desired by most everyone at one point or another, bringing in repeat customers and creating a reliable source of demand. Over the past few years, the hospitality industry has been rebounding from the effects of the coronavirus pandemic.
From a size of $4.7 trillion in 2023, the market for global hospitality is expected to reach $5.5 trillion in 2024 and $11.7 trillion by 2029, according to Statista. In addition to recovering from the period of loss experienced by the entire market, hospitality services are experiencing additional interest from the work-from-home trend and younger generations’ desire to see the world.
Companies in the hospitality industry are looking to benefit from the rise in available accommodations and life experiences for consumers. Due to abundant competition, hospitality companies will have to differentiate themselves from their peers with added perks, deals and other business-catchers to bring in consumers.
Grading Hospitality Stocks With AAII’s A+ Stock Grades
When analyzing a company, it is helpful to have an objective framework that allows you to compare companies in the same way. This is why AAII created the A+ Stock Grades, which evaluate companies across five factors that research and real-world investment results indicate to identify market-beating stocks in the long run: value, growth, momentum, earnings estimate revisions (and surprises) and quality.
Using AAII’s A+ Stock Grades, the following table summarizes the attractiveness of three hospitality stocks — Carnival, Playa Hotels and Travel + Leisure — based on their fundamentals.
AAII’s A+ Stock Grade Summary for Three Hospitality Stocks
What the A+ Stock Grades Reveal
Carnival Corp. (CCL) provides leisure travel services in North America, Australia, Europe and Asia. The company operates through four segments: North America and Australia (NAA) cruise operations, Europe cruise operations, cruise support, and tour and other. It operates port destinations, private islands and a solar park, as well as owns and operates hotels, lodges, glass-domed railcars and motor coaches. The company offers its services under the Carnival Cruise Line, Princess Cruises, Holland America Line, Seabourn, Costa Cruises, AIDA Cruises, P&O Cruises and Cunard Line brands. Additionally, it sells its cruises primarily through travel agents, tour operators, vacation planners and websites. Carnival was founded in 1972 and is headquartered in Miami, Florida.
The company has a Value Grade of C, based on its Value Score is 45, which is average. Higher scores indicate a more attractive stock for value investors and, thus, a better grade. The Value Grade is the percentile rank of the average of the percentile ranks of the price-to-sales (P/S) ratio, price-earnings (P/E) ratio, price-to-book-value (P/B) ratio, price-to-free-cash-flow (P/FCF) ratio, shareholder yield and the ratio of enterprise value to earnings before interest, taxes, depreciation and amortization (EV/EBITDA). Carnival has an enterprise-value-to-EBITDA ratio of 8.9, compared to the sector median of 9.2, and a price-to-free-cash-flow ratio of 15.2, compared to the sector median of 17.9.
The components of the Growth Composite Score consider a company’s success in growing sales on a year-over-year and long-term annualized basis and its ability to consistently generate positive cash from its core operations. The company currently has a Growth Grade of C, which is average. The company has a five-year annualized sales growth rate of 2.7%. Sales have increased in three of the past five years. Cash from operations has been positive for two of the past five years.
Carnival has a Momentum Grade of B, based on its Momentum Score of 66. This means that the stock’s momentum has been strong in terms of its weighted relative price strength over the last four quarters. The weighted four-quarter relative strength rank is the relative price change for each of the past four quarters, with the most recent quarterly price change given a weight of 40% and each of the three previous quarters given a weight of 20%. The ranks are 69, 57, 28 and 85, sequentially from the most recent quarter. The weighted four-quarter relative price strength is 1.8%.
Earnings estimate revisions indicate how analysts view a firm’s short-term prospects. Carnival has an Earnings Estimate Revisions Grade of B, based on a score of 70, which is positive. The grade is based on the statistical significance of its latest two quarterly earnings surprises and the percentage change in its consensus estimate for the current fiscal year over the past month and past three months.
Carnival reported a positive earnings surprise of 747.1% for its fiscal second quarter of 2024 ended in May, with a positive earnings surprise of 20.9% in the prior quarter. Over the last month, the consensus earnings estimate for the fiscal third quarter of 2024 has remained virtually unchanged at $0.57 per share, based on 17 estimates. Over the last month, the consensus earnings estimate for fiscal full-year 2024 ending in November has also remained unchanged at $1.19 per share, based on 24 estimates.
Playa Hotels & Resorts N.V. (PLYA), together with its subsidiaries, owns, develops and operates resorts in prime beachfront locations in Mexico and the Caribbean. It owns and manages Hyatt Zilara Cancún, Hyatt Ziva Cancún, Wyndham Altar Cancún, Wyndham Alltra Playa del Carmen, Hilton Playa del Carmen All-Inclusive Resort, Hyatt Ziva Puerto Vallarta and Hyatt Ziva Los Cabos located in Mexico; Hyatt Zilara Rose Hall, Hyatt Ziva Rose Hall, Hilton Rose Hall Resort & Spa, Jewel Grande Montego Bay Resort & Spa, and Jewel Paradise Cove Beach Resort & Spa situated in Jamaica; and the Hilton La Romana All-Inclusive Family Resort, the Hilton La Romana All-Inclusive Adult Resort, Hyatt Zilara Cap Cana, Hyatt Ziva Cap Cana and Jewel Palm Beach located in the Dominican Republic. It also manages resorts on behalf of third-party owners. The company was founded in 2006 and is headquartered in Amsterdam, Netherlands.
The company has a Value Grade of B, based on a Value Score is 74, which is good value. Playa Hotels’ Value Score is based on several traditional valuation metrics. The company ranks in the 5th percentile among all U.S.-listed stocks on its shareholder yield, the 35th percentile on its price-to-sales ratio and the 32nd percentile on its enterprise-value-to-EBITDA ratio. The company has a shareholder yield of 12.9%, a price-to-sales ratio of 1.03 and an enterprise-value-to-EBITDA ratio of 7.5. The price-to-book ratio is 1.84, which translates to a rank of 53.
Playa Hotels has a Growth Grade of A, which is very strong. Playa Hotels’ five-year annualized sales growth rate is 9.6%, compared to the sector median of 5.2%. Year-over-year sales increases and annual cash from operations have both been positive in the last four out of five years.
A higher-quality stock possesses traits associated with upside potential and reduced downside risk. Backtesting of the Quality Grade shows that stocks with higher grades, on average, outperformed stocks with lower grades from 1998 through 2019.
The A+ Quality Grade is the percentile rank of the average of the percentile ranks of return on assets (ROA), return on invested capital (ROIC), gross profit to assets, buyback yield, change in total liabilities to assets, accruals to assets, Z double prime bankruptcy risk (Z) score and F-Score. The score is variable, meaning it can consider all eight measures or, should any of the eight measures not be valid, the valid remaining measures. To be assigned a Quality Score, though, stocks must have a valid (non-null) measure and corresponding ranking for at least four of the eight quality measures.
The company has a Quality Grade of B, based on a score of 71, which is strong. It ranks strongly in terms of its return on assets and F-Score. The F-Score is a number between 0 and 9 that assesses the strength of a company’s financial position based on its profitability, leverage, liquidity and operating efficiency. Playa Hotels’ return on assets is 3.0%, compared to the sector median of 1.1%, and its F-Score is 7, compared to the sector median of 5. One quality metric below the sector median is Playa Hotels’ return on invested capital of 10.0%, compared to 15.9% for the sector median.
Playa Hotels has an Earnings Estimate Revisions Grade of B, based on a score of 66, which is positive. It reported a positive earnings surprise of 25.0% for second-quarter 2024, and in the prior quarter reported a 33.8% positive earnings surprise. Over the last three months, the consensus earnings estimate for the third quarter of 2024 has decreased from –$0.05 to –$0.18 per share, due to five downward revisions. The consensus earnings estimate for full-year 2024 has slightly increased over the last three months from $0.418 to $0.425 per share.
Travel + Leisure Co. (TNL), together with its subsidiaries, provides hospitality services and travel products in the U.S. and internationally. The company operates in two segments: vacation ownership, and travel and membership. The vacation ownership segment develops, markets and sells vacation ownership interests (VOIs) to individual consumers, as well as provides consumer financing in connection with the sale of VOIs; and property management services at resorts. The travel and membership segment operates various travel businesses, including three vacation exchange brands, travel technology platforms, travel memberships and direct-to-consumer rentals. This segment also offers private-label travel booking technology solutions.
Travel + Leisure has a Quality Grade of A, with a score of 91, which is very strong. The company ranks strongly in terms of its return on assets and buyback yield. The company has a return on assets of 6.4% and a buyback yield of 5.9%. The sector median buyback yield is –0.2%. One quality metric that is lower than the sector median is Travel + Leisure’s gross income to assets of 27.7%, compared to 30.2% for the sector median.
Travel + Leisure has a Value Grade of A, based on a score of 90, which is deep value. The company ranks in the 12th percentile for the price-earnings ratio and in the 28th percentile for the price-to-sales ratio. The company has a price-earnings ratio of 7.7 and a price-to-sales ratio of 0.79.
Travel + Leisure has a Growth Grade of B, which is strong. The five-year sales growth rate is –0.9%, compared to the sector median of 5.2%. Year-over-year sales have increased in four of the last five years, and cash from operations have been positive in the past five consecutive years.
The company has a Momentum Grade of C, with a score of 47. This means that the stock’s momentum is average in terms of its weighted relative price strength over the last four quarters. The ranks are 39, 48, 78 and 60, sequentially from the most recent quarter. The weighted four-quarter relative price strength is –3.5%.
Travel + Leisure reported a positive earnings surprise of 8.2% for second-quarter 2024, and in the prior quarter reported a positive earnings surprise of 12.5%. The company’s third-quarter 2024 consensus estimate has been lowered over the last three months from $1.58 to $1.49 per share. Its consensus estimate for full-year 2024 of $5.65 per share has remained essentially unchanged.
