In this week’s piece we discuss five topics: 1) poor freight trends as it relates to our coverage; 2) softer U.S. GGR trends in June; 3) VAC’s valuation is near an all-time low versus its prior parent company MAR; 4) recently disclosed buybacks from CCL, and our analysis on why additional buybacks could be limited for at least a couple years; and 5) our thoughts on a possible sale/leaseback transaction at MGM for Bellagio and MGM Grand, and our analysis on what we think this could be worth to the stock. Please click the link above for the full report.
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For our Weekly Sho we've recorded a 20-minute video with 36 slides highlighting our current views as we head into another earnings season. The cruise line section begins at 4:03, the lodging section begins at 9:00, and the gaming section begins at 15:40. Enjoy the rest of your weekend!
Our coverage is up 24% YTD, on average, which is modestly outperforming the market. However, our coverage remains 21% below 2018 highs, on average, and also 10% below 2019 highs, on average, all while the market is near an all-time high. Our coverage mostly remains out-of-favor, in our opinion, but we see some opportunities. Within lodging our best idea is VAC. Within gaming our best idea is ERI. And within cruise our best ideas are RCL/NCLH.
In this week’s piece we discuss 1) the reaction after CCL’s results, the read-through to RCL and NCLH, and what we’ve heard from our conversations; 2) some additional thoughts on the ERI asset sales as it pertains to ERI/CZR; and 3) why we think HGV’s stock has materially outperformed in recent weeks. Please click the link above for the full report.
This was an eventful week for our coverage and for us as we were out meeting with investors most of the week. For this week’s piece we discuss 1) the Cuba travel ban, 2) more news flow on a potential CZR acquisition, 3) our VAC thesis with an interesting chart following our roadshow with management, and 4) our gauge of investor sentiment from our conversations. We’re also rebranding this weekly piece from our “Charts of the Week” to now “The Weekly Sho.”
This week we were on the road with VAC, including the CFO and the new head of IR. The meetings were positive, we thought, and highlighted why we think this is the best stock to own in our coverage.
Hotel brand loyalty is critically important because loyalty members pay higher rates, spend more while at the property, stay more frequently, and cost less (i.e. a direct booking guest without OTA commissions), which attracts developers and owners to the brand. Importantly, loyalty is growing. The combined loyalty at the major C-Corps (MAR/HOT, HLT, IHG, CHH, and WH) currently totals ~450M members. Five years ago, those same C-Corps had combined loyalty of only around ~270M members.
WH trades at a discount to peers and we often hear some investors tell us the discount should close over time. Admittedly, the level of WH’s relative valuation seems more compelling to us – specifically versus CHH – as WH has underperformed CHH and its relative valuation to CHH has contracted further since WH’s spinoff last year. However, we continue to rate the stock Peer Perform because we believe there are reasons for a discount to peers – especially relative to MAR and HLT – and there are reasons why we don’t believe the valuation gap will meaningfully close in the near term. In this week’s piece we explore this idea by analyzing ten themes that factor into WH’s relative valuation. Please click the link above for the full report.
In recent years hotels have modified rate options within the booking process while also modifying cancellation policies, we think with a goal to reduce churn and cancellation activity. In years past, hotels offered a standard rate option – book now and pay at check-in. Now, hotels offer multiple options, including an option to pre-pay now at a lower but non-refundable rate. Hotels have also tightened cancellation policies for the standard rate (i.e. pay at check-in rate), with cancellation policies extending from 0-24 hours prior to check-in to in some cases now 72 hours before check-in. These policies have resulted in less cancellations, and on the last earnings call HLT cited cancellations are down 10% over the past several years.
Each year around this time we dig through annual proxy statements to learn about changes in corporate governance and shareholder alignment, and we publish the results. Specifically, we study three broad categories: 1) CEO compensation, including how much and how it’s derived, 2) CEO equity ownership, and 3) board composition. We gave each company a qualitative score for each category and aggregated the results in Exhibit 1. Every company has areas of improvement, in our view, but HLT and WYND scored best based on our qualitative aggregation, followed by VAC, NCLH, and WH. All five are companies we think to be commercially aggressive and shareholder focused
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