Analyzing the Holiday Gain Potential of 3 Travel Stocks

The travel industry is buzzing with optimism fueled by pent-up demand. The hotels, resorts, cruise, and airline sectors are undergoing a post-pandemic resurgence, driven by a renewed interest in travel.

Given the backdrop, in this piece, I have highlighted the fundamentals of three travel companies: Ryanair Holdings plc (RYAAY), Atour Lifestyle Holdings Limited (ATAT), and Norwegian Cruise Line Holdings Ltd. (NCLH). Before digging deeper into the fundamentals of these stocks, let’s briefly examine the industry prospects first.

According to Deloitte, the enthusiasm for travel remains high, with approximately 48% of Americans planning to travel this holiday season. Across all age and income brackets, there is an increased intention to travel from Thanksgiving to mid-January, with an average holiday budget of $2,725.

Moreover, there’s a notable change in lodging preferences, with over half (56%) of holiday travelers intending to stay in hotels, a substantial increase from the 35% recorded in 2022. Additionally, about 37% of travelers are planning to embark on at least one flight during the holiday season.

Meanwhile, according to AAA Travel, this year’s count of individuals opting for cruises, buses, and trains during Thanksgiving has surged by almost 11% compared to the previous year, underscoring a robust recovery from the pandemic.

Paula Twidale, Senior Vice President of AAA Travel, noted that the cruise industry, particularly, has experienced a noteworthy resurgence. Thanksgiving cruises were predominantly sold out, attracting many travelers who are eager to spend the holiday at sea.

Furthermore, despite the unprecedented impact of the pandemic, the airline sector has largely rebounded thanks to the pent-up demand for travel. The International Air Transport Association (IATA) anticipates that the net profits of the sector will achieve $25.70 billion in 2024, with a 2.7% net profit margin. This reflects a marginal improvement from the upwardly revised projections for the current year.

Given the signs of resilience and recovery across its various sectors, the travel industry's prospects look bright. To that end, let’s dive deeper into the fundamentals of the featured stocks in detail:

Stocks to Buy:

Ryanair Holdings plc (RYAAY)

Headquartered in Swords, Ireland, RYAAY provides scheduled-passenger airline services internationally. The company also provides non-flight scheduled and Internet-related services, markets car hire, travel insurance, and accommodation services through its website and mobile app.

On December 13, RYAAY announced its plans to invest $1.40 billion in its most extensive program to date, focusing on expanding operations in Morocco for the Summer 2024 schedule. With over 1,100 weekly flights covering 175 routes, including 35 new ones, this investment aims to enhance internal connectivity and fuel traffic growth in Morocco.

In the same month, RYAAY announced its inaugural operations at Norwich Airport for the upcoming summer starting April 1, 2024. This expansion marks Norwich as RYAAY’s 22nd airport in the United Kingdom, offering competitive fares, improved connectivity, and a diverse range of choices for customers in Norwich and the broader Norfolk region

The move aims to break away from the traditionally high fares imposed by dominant carriers at Norwich Airport. Furthermore, RYAAY’s presence in Norwich is expected to boost inbound tourism, creating over 60 local jobs and contributing to regional growth and development.

RYAAY’s trailing-12-month Return On Common Equity (ROCE) of 29.53% is 142.2% higher than the 12.19% industry average. Likewise, its trailing-12-month EBIT margin of 18.40% is 89.2% higher than the industry average of 9.73%. Furthermore, the stock’s trailing-12-month net income margin of 17.50% is 188.5% higher than the 6.07% industry average.

For the fiscal second quarter, which ended on September 30, 2023, RYAAY’s total operating revenues increased 22.7% year-over-year to €4.93 billion ($5.32 billion), while its operating profit rose 33.6% from the year-ago value to €1.70 billion ($1.83 billion).

The company’s attributable profit for the quarter and total comprehensive income for the quarter amounted to €1.52 billion ($1.64 billion) and €2.27 billion ($2.45 billion), up 40.8% and 420.8% year-over-year, respectively.

Street expects RYAAY’s revenue and EPS for the fiscal period ending March 2024 to increase 24.2% and 43.6% year-over-year to $14.47 billion and $9.73, respectively. Moreover, the company surpassed its revenue and EPS estimates in three of the trailing four quarters, which is impressive. 

RYAAY’s shares have surged 60.5% over the past year and 69.3% year-to-date to close the last trading session at $126.55.

RYAAY’s POWR Ratings reflect this promising outlook. The stock has an overall B rating, translating to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.  

It has an A grade for Sentiment and a B for Quality. In the 28-stock Airlines industry, it is ranked #8. Click here to see RYAAY’s ratings for Growth, Value, Momentum, and Stability.

Atour Lifestyle Holdings Limited (ATAT)

Headquartered in Shanghai, ATAT provides lifestyle brands around hotel offerings in China. The company operates a series of themed hotels, including music hotels, basketball hotels, and literary hotels catering to the various lifestyles across different age groups with varied interests.

On September 28, ATAT paid a dividend of $0.05 per ordinary share or $0.15 per ADS, with each ADS representing three Class A ordinary shares. The company’s annual dividend translates to a 0.90% yield on the prevailing prices, while its four-year average dividend yield is 0.21%.

ATAT’s trailing-12-month levered FCF margin of 27.66% is 438.4% higher than the 5.14% industry average. Its trailing-12-month EBIT margin of 16.68% is 122.3% higher than the industry average of 7.50%. Furthermore, the stock’s trailing-12-month EBITDA margin of 19.09% is 75% higher than the 10.91% industry average.

In the fiscal third quarter, which ended on September 30, 2023, ATAT’s net revenues increased 93.1% year-over-year to $177.37 million, while its income from operations grew 130% from the prior-year quarter to $46.78 million.

The company’s adjusted net income and adjusted EBITDA amounted to $37.28 million and $52.09 million, up 144.7% and 122.4% from the year-ago value, respectively. Also, its net income per ordinary share improved 110% year-over-year to $0.09.

The consensus EPS estimate of $0.21 for the fiscal fourth quarter (ending December 2023) represents a 134.8% increase year-over-year. The consensus revenue estimate of $171.40 million for the same quarter reflects an 88.1% year-over-year improvement. Additionally, the company has an excellent surprise history, surpassing the revenue estimates in each of the trailing four quarters. 

Over the past six months, the stock has gained 4.2% to close the last trading session at $16.71.

It’s no surprise that ATAT has an overall rating of B, which equates to Buy in our proprietary rating system. It has an A grade for Growth and a B for Sentiment and Quality. In the 20-stock Travel - Hotels/Resorts industry, it is ranked #2.

In addition to the POWR Ratings we’ve stated above, we also have ATAT’s ratings for Value, Momentum, and Stability. Get all ATAT ratings here.

Stock to Avoid:

Norwegian Cruise Line Holdings Ltd. (NCLH)

NCLH operates as a cruise company in North America, Europe, the Asia-Pacific, and internationally. The company operates the Norwegian Cruise Line, Oceania Cruises, and Regent Seven Seas Cruises brands.

NCLH’s trailing-12-month Return On Total Capital (ROTA) of 2.19% is 63.7% lower than the 6.04% industry average. Its trailing-12-month asset turnover ratio of 0.42x is 57.4% lower than the industry average of 0.99x. Furthermore, the stock’s trailing-12-month cash per share of $1.60 is 30.9% lower than the $2.32 industry average.

For the fiscal third quarter, which ended on September 30, 2023, NCLH’s total revenue amounted to $2.54 billion. During the same period, the company’s net income and EPS came in at $345.87 million and $0.71, respectively. In addition, its cash and cash equivalents stood at $681.56 million, declining 28% compared to $946.99 million as of December 31, 2022.

Analysts predict NCLH’s revenue for the fourth quarter (ending December 2023) to come in at $1.96 billion, while its EPS for the same quarter is expected to come in at a negative $0.14. Moreover, the company’s EPS is projected to decline by 745.3% per annum over the next five years.

The stock has gained marginally over the past six months to close the last trading session at $18.45.

NCLH’s weak fundamentals are reflected in its POWR Ratings. It has an overall rating of D, which equates to a Sell in our proprietary rating system.

It has an F grade for Stability and a D for Sentiment and Quality. Within the 4-stock Travel - Cruises industry, it is ranked last. Click here to see the other ratings of NCLH for Growth, Value, and Momentum.

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RYAAY shares were trading at $125.68 per share on Wednesday morning, down $0.87 (-0.69%). Year-to-date, RYAAY has gained 68.11%, versus a 22.77% rise in the benchmark S&P 500 index during the same period.

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