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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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.
This morning (5/10/19) MAR reported adjusted EBITDA of $821M, versus our $829M, consensus of $836M, and the prior guide of $820M-$845M. EBITDA came in at the low end of the range due to cost items, while EPS was better partly because of a lower tax rate. MAR reiterated FY RevPAR guidance (+1%-3%), prior FY EBITDA guidance ($3,615M-$3,715M), and prior capital returns guidance (at least $3B), but the stock closed down 3% we think because of a headline miss and softer 2Q guidance implying a bigger back half ramp.
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.
Many investors have asked us why MAR and HLT continue to perform well driven by multiple expansion in the face of seemingly slowing RevPAR growth. The stocks have re-rated off the December lows and they now might seem more expensive. However, we don’t think valuations are unreasonable by any means, and we illustrate with five charts.
This is a deep dive report we write each quarter where we update our thesis with new charts and preview each company and update estimates into earnings. Since the Christmas Eve bottom the average of our coverage is up 32%. The absolute risk/reward now seems less compelling, but the S&P 500 is also up 22% since the bottom, and our coverage is higher beta and already meaningfully underperformed the market last year.
For our weekly charts this week we examine why U.S. RevPAR growth has been soft and why we expect it to remain soft. Specifically, we list seven key challenges with supporting 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.
MAR hosted a well-attended analyst day in NYC today (3/18/2019). Overall the day seemed mostly constructive to us and our three key takeaways are 1) positive EBITDA targets from net unit growth, 2) the business seems more resilient in the event of declining RevPAR than we think many perceived, but 3) cash conversion on the EBITDA targets was weaker than normal.
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.
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