NEW YORK (Reuters) – Investors are watching next week’s earnings reports of hotels, intersections and other businesses hit hard by COVID-19 for indications of which companies may be the first to bounce back if the pandemic subsides.
For almost a year, money managers have been largely looking at earnings in the travel and leisure sector, where coronavirus-driven locks and travel restrictions have plagued corporate ventures and crushed their share prices: shares of Marriott and Norwegian Cruise Lines, for example. lower. 12% or more in the past year, compared to an almost 17% profit for the S&P 500 until Friday afternoon.
However, next week’s numbers may provide clues as to which companies have the best financial health and benefit most from the reopening of the economy, and it may also help investors better determine where companies should be valued.
“The results across the board are going to be bad, but it’s really about who’s coming back,” said Adam Trivison, a portfolio manager at Gabelli Funds.
The focus on travel and leisure companies comes as investors measure the effectiveness of the US vaccination effort and the extent to which it will help the economy get back on track.
The White House announced on February 2 that it would begin shipping vaccines directly to retail pharmacies, along with regular shipments to states, which would increase its weekly shot inventory to 11.5 million. About 10.5% of the U.S. population up to February 11, according to estimates from the Centers for Disease Control and Prevention, received at least one of the two shots needed for complete vaccination.
Will Hilkert, portfolio manager of the Fidelity Select Leisure Fund, said the earnings results for the next two quarters would be an in-depth check for investors who have thrown at the leisure sector as a play for the reopening of the economy.
“In the next six to nine months, you will have the opportunity to make sure that the fundamentals of the company match what you are going to look like in the pandemic,” he said.
Hilton Worldwide Holdings Inc and Hyatt Hotels Corp. are expected to announce their results on February 17, followed by Marriott, Norwegian Cruise Lines and TripAdvisor on February 18.
Trivison, of Gabelli Funds, said he would monitor hotel bookings in the group meeting, which he expects to provide clues about the extent of employee travel in the week ahead. Business travelers typically make up 25% of a hotel chain’s customers, although this may be higher in destinations such as Orlando and Las Vegas.
Historically high valuations in the hospitality sector can give potential investors a break before buying at current levels, says Daniel Kane, a portfolio manager at Artisan Partners who bought shares of Marriott while the stock tumbled last March and April.
Most stocks in the hospitality sector are now trading based on estimates of their 2023 results, which push their current valuations far above their long-term averages, said Robin Farley, an analyst at UBS.
For example, Marriott is trading at a price of 240.7, while Hilton is currently not profitable, but according to the Refinitiv data is trading at 515.7 against the current financial year earnings.
Cruise lines are not expected to become widely profitable again until 2022, when most international travel restrictions need to be eased. Norwegian, for example, is trading at 35.2 times its estimated earnings in 2022, while Royal Caribbean, according to Refinitiv, is trading 40.4 times its estimated earnings for 2022. Marriott traded at a backlog P / E of about 16 before widespread economic constraints were imposed in March.
Chris Terry, a portfolio manager at Hodges Funds, has scrapped a position in Norwegian after the company’s shares rose following the vaccine’s approval. He now sees to it that the company shows increasing improvement in its forthcoming earnings report to confirm that business is recovering.
” A year ago, quarterly earnings were basically irrelevant, ” he said. “Now we want to see that there is progress on the roster to get the revenue back to where it was in a meaningful way.”
Reporting by David Randall; Edited by Ira Iosebashvili and Nick Zieminski