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!
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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 this week’s piece we discuss five ideas with five charts, including probably way-too-early hurricane forecasts for the upcoming Atlantic hurricane season as it relates to cruise lines; NCLH’s recent consistent beat and raise execution, and what that hasn’t meant for the equity multiple; why VAC’s planned analyst day later this Fall seems positive; RevPAR index gains for brands, who seemingly took RevPAR share from independents in 1Q, which we believe is positive for the long-term model; and softer Chinese credit data in April, and what that might mean for Macau GGR. Please click the link above for the full report.
Last week was a busy week filled with cruise, gaming, and lodging earnings reports. In this week’s piece we highlight ten key themes with several charts. Please click the link above for the full report.
For our weekly charts this week we provide an update on IMO 2020 given on-going fluctuating fuel prices as well as some recent and potentially overlooked news on scrubber policy, which could become problematic for CCL. We’ll discuss and later in Exhibit 1 and Exhibit 2 we’ll quantify the potential impact to fuel expense. Please click the link above for the full report.
Last week we lowered our Lodging sector rating to Market Weight and downgraded HST to Underperform. Our view is we seem late in the lodging cycle and we think U.S. RevPAR faces risks. See our notes with our complete thesis here and here. To be clear we aren’t making a negative call on all lodging. We’re still bullish on timeshare (VAC and HGV), which is our favorite sub-group, and RevPAR isn’t a KPI for timeshare. We also think the hotel C-Corps can still work in a tepid U.S. RevPAR environment because the asset-light business models are powerful, and efforts by China/Europe to re-stimulate could start to favor names with international exposure like the C-Corps, but admittedly we now see less exciting upside to the C-Corps as reflected by our target prices. Given the move in lodging stocks as well as slowing U.S. RevPAR the risk/reward of the space seems less compelling. Owned real estate in the U.S. seems most exposed to our view, which is the reason for our downgrade of HST to Underperform. Investor feedback on our call has generally been receptive, and it feels like sentiment is definitely biased negative. From our conversations we even sense some bearishness towards the high-quality C-Corps.
Timeshare stocks have rallied hard since the Christmas Eve bottom, with VAC up 61%, HGV up 33%, and WYND up 39% versus the S&P 500 up 19%. However, the stocks still remain well off their 2018 highs. For example, VAC remains 35% below its prior high and HGV remains 31% below its prior high, and it’s been entirely a function of multiple contraction. Interestingly, the S&P 500 is now only 5% below its prior high and credit spreads have narrowed considerably.
Last Thursday (08/16/18) we sent out a video update with slides (located here) on our space highlighting the magnitude of the sell-off in gaming, lodging, and cruise line stocks and why we think our names present buying opportunities within the consumer space. The market continues to hover around all time highs, but the average of the stocks we cover are currently down 19% from recent highs, and it’s been driven by multiple contraction. There are various reasons for the weakness whether it’s fuel/FX related, hurricane related, Vegas group demand related, China macro related, or just overall cycle related, but we also think the stocks of our sectors are saying something different about the cycle and future risk versus what the broad market is saying and we think one is probably right and one is probably wrong. Now, we think re-positioning and just an overall rotation on mean reversion is another key factor, as retail names sensitive to the Amazon effect which underperformed last year are now outperforming this year. It’s likely that trade has been funded from the experiential travel names – the ones we cover – which materially outperformed in 2017.
MAR’s stock is now down 19% from its high in January, and the stock had a particularly tough week this past week after what appears to be some minor merger integration issues in the form of higher room terminations than expected. Sentiment on this stock has gotten poor, and we feel the need to reiterate and defend the bull thesis on this stock with five key charts. While admittedly there aren’t many identifiable “near-term catalysts,” we think MAR is too good of a company at this valuation, and these charts are meant for investors looking for quality on a pullback. Our thesis on MAR really applies to HLT, too, another stock we like for quality on a pullback. We’ll run through five charts and we’ll start with room terminations.
We see potential upside to travel and tourism-related spending as individual tax reform savings continue to ramp. So far in 2018 core personal consumption expenditures (gross) are up 4.3% y/y, which is actually decelerated from 4.5% y/y in 2017, despite individual tax reform resulting in higher paychecks. When looking at total PCE to account for higher energy prices the growth rates are the same in 2017 and YTD at 4.5% y/y. Within our coverage universe we see similar trends, as we show below in the first chart. Total travel spending on outbound travel and personal spending on outbound travel reported by BEA and NTTO have also decelerated as has casino gambling PCE reported by BEA. Hotel/motel PCE has accelerated slightly from 2017 as corporate RevPAR has improved we think in part because of corporate tax reform. Still, the implication to us is that individual tax savings have still not had a noticeable impact on consumer spending.
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