Investors watch hotel and cruise line fees as vaccines rise in the US.


NEW YORK (Reuters) – Investors are watching next week’s earnings reports from hotels, cruise lines and other companies that have been badly hit by COVID-19 for signs of which companies could be the first to recover when the pandemic recedes.

For nearly a year, money managers have largely looked at past earnings in the travel and leisure sector, where lockdowns and travel restrictions brought on by the coronavirus hit companies’ businesses and crushed their share prices. : The shares of Marriott and Norwegian Cruise Lines, for example, fell. 12% or more in the past year, compared to a nearly 17% gain for the S&P 500 through Friday afternoon.

However, next week’s figures may offer clues as to which companies are in the best financial health and would benefit the most from the economic reopening, while also allowing investors to better assess where companies should be valued.

“Overall results are going to be bad, but it will really be about who will come back,” said Adam Trivison, portfolio manager at Gabelli Funds.

The focus on travel and leisure businesses comes as investors more broadly assess the effectiveness of the US vaccination effort and the degree to which it will help bring the economy back to normal.

The White House announced on February 2 that it will begin shipping vaccines directly to retail pharmacies alongside regular shipments to states, increasing the weekly supply of injections to 11.5 million. About 10.5% of the US population as of February 11 had received at least one of the two injections necessary for a full vaccination, according to estimates from the Centers for Disease Control and Prevention.

Will Hilkert, a portfolio manager at the Fidelity Select Leisure fund, said earnings results over the next two quarters will serve as a test of instinct for investors who had gambled on the leisure sector as a bid to reopen the economy. .

“Over the next six to nine months, you will have the opportunity to ensure that what you think the world will be like after the pandemic matches the fundamentals of the business,” he said.

Hilton Worldwide Holdings Inc and Hyatt Hotels Corp are expected to release their results on February 17, followed by Marriott, Norwegian Cruise Lines and TripAdvisor on February 18.

Gabelli Funds’ Trivison said it will keep an eye on hotel bookings in the group meeting business, which it hopes to offer clues to employee travel scale in the coming 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 cause some potential investors to pause before buying at current levels, said Daniel Kane, a portfolio manager at Artisan Partners who bought shares of Marriott as its shares fell in March and April.

Most stocks in the hospitality sector are now trading based on estimates of their 2023 results, raising their current valuations well above their long-term averages, said Robin Farley, an analyst at UBS.

Marriott, for example, is trading at a final multi-earnings price of 240.7, while Hilton is currently unprofitable but is trading at 515.7 its current fiscal year earnings, according to Refinitiv data.

Meanwhile, cruise lines are not expected to become broadly profitable again until 2022, when most international travel restrictions should be eased. Norwegian, for example, is trading at 35.2 times its 2022 estimated earnings, while Royal Caribbean is trading at 40.4 times its 2022 estimated earnings, according to Refinitiv. Marriott was trading at a final P / E of around 16 before widespread economic restrictions were implemented in March.

Chris Terry, a portfolio manager at Hodges Funds, has been cutting a position in Norwegian after the company’s shares rallied following vaccine approvals. He is now on the lookout for the company to show incremental improvement on its next earnings report to confirm that the business is on the mend.

“Going back a year ago, quarterly earnings were basically irrelevant,” he said. “Now we want to see that there is progress on the schedule so that revenues are back where they were in a meaningful way.”

Reporting by David Randall; Editing by Ira Iosebashvili and Nick Zieminski

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