The U.S. ISM manufacturing PMI has been in a downtrend for the last year, and this week it fell below the key 50 level for the first time since August 2016. In this week’s piece we examine the implications for our coverage by looking at industry stock returns over the last 25 years in relation to when PMI drops below 50 as well as when PMI eventually bottoms.
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News reports this week (8/19-8/23) indicated Apollo’s interest in acquiring HGV, which we discussed here. This followed a recent 13F disclosure of a 4.5% stake by Centerbridge, which sparked investor speculation and may have forced Apollo to get the ball rolling, and it’s possible we could see interest from others begin to emerge, too. The chances of an HGV buyout have increased, though there are still some hurdles to overcome, like HLT sign-off and HGV management/shareholder sign-off on the right price. Ultimately, we believe these developments are positive for the group, even if nothing ends up happening, because this may have helped turn sentiment and put a floor in valuation knowing there may be large potential buyers at these distressed valuations (e.g. timeshare was down less than our coverage and the market on Friday’s sell off).
We’ve taken a fresh look at our assumptions for each company now that 2Q earnings season has been digested. Some estimates come up, some come down, and some don’t move as we just changed some of the assumptions with various offsets. Each is detailed below.
Timeshare stocks were under pressure last week after earnings reports. Each of the three missed contract sales expectations in 2Q and each guided/talked down contract sales for the full year for various idiosyncratic reasons, but VAC and WYND still reiterated FY EBITDA guidance. Importantly, we do not believe the lower contract sales is demand related. We believe demand concerns were part of the further weakness in the stocks on Friday. However, to us it seems each case was unique and one-time in nature. Additionally, we think industry contract sales will still grow 5% in 2019, despite some of these non-demand related issues, and we think that growth could accelerate in 2020. We’ll discuss our thoughts with several charts. We continue to favor VAC, which is our top idea in our coverage, and we think their upcoming analyst day will provide a near-term catalyst for the stock. We’d buy the pullback now. Please click the link above for the full report.
Adjusted EBITDA was $255M versus our $256M and consensus of $253M. Adjusted EPS was $1.45, versus our $1.35 and consensus of $1.36. Contract sales growth missed consensus by a point due to some one-off issues, but the provision was slightly better, operating costs were better, and interest expense was lower. WYND reiterated prior FY EBITDA guidance while raising prior adjusted EPS and adjusted free cash flow guidance from buybacks, interest expense, and working capital.
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!
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 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.
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