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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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.
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.
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
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.
HGV reported 1Q earnings yesterday PM and hosted their call this AM (5/2/19). EBITDA was $102M, which was in line us and consensus. However, contract sales declined 2% y/y, which was below HGV’s expectation for moderate growth. March VPG was much softer than expected, due to inventory challenges after selling out of high-quality inventory. As a result, HGV lowered FY contract sales guidance from 9%-11% y/y to 5%-8% y/y, but only lowered FY EBITDA guidance by $5M to $445M-$465M because of variable costs, cost containment, and better other revenue.
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.
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