Even if you aren't taking a cool trip this summer, now is the time to take a closer look at travel and tourism stocks. International tourism is on the rise yet again, and the United Nations World Tourism Organization (UNWTO) expects 2014 to be another record-breaking year with 4-4.5% growth in international tourist arrivals. The increase is higher than the UNWTO's earlier long-term growth rate projection of 3.8% annually, and it means the UNWTO foresees between 1.13 billion and 1.136 billion international arrivals taking place this year.
Here in the US, business travel is on the upswing, and a growing number of people are traveling overseas for work. According to the Global Business Travel Association's (GBTA) Business Travel Index Outlook, international outbound business travel trip volume is projected to rise by 6.6% this year while trip spending is expected to grow by 10.3%.
Whether it's for business or leisure, more people will be traveling abroad this year. A look at travel and tourism stocks (stocks belonging to the Dow Jones Travel & Tourism Index; air services, other industry; lodging industry; regional airlines; and resorts and casinos industry) reveals that the following five stocks are more profitable than their peers: Choice Hotels International Inc. (NYSE:CHH), Grupo Aeroportuario del Pacifico S.A.B. de CV (NYSE:PAC), Grupo Aeroportuario Del Sureste SA de CV (NYSE:ASR), Interval Leisure Group, Inc. (IILG), and Las Vegas Sands Corp. (NYSE:LVS). In this context, more profitable means that the stocks' gross margin, operating margin, and pretax are all greater than the industry average on a trailing twelve-month basis. Stocks that satisfy these criteria are operating more efficiently than their peers.
Choice Hotels International operates hotels in the United States and Canada. Its brand portfolio includes Comfort Inn, Comfort Suites, Econo Lodge, and Quality Inn, among other franchises. The stock's TTM gross margin is 43.77% vs. an industry average of 36.84%. Its TTM operating margin is 27.05% vs. an industry average of 19.3%, and its pretax margin is 21.92% vs. an industry average of 14.12%.
Grupo Aeroportuario del Pacifico S.A.B. de CV operates airports in the Pacific and Central regions in Mexico. Popular destinations in those areas include Mexico City, Cuernavaca, and Acapulco. The stock's TTM gross margin is 66.71% vs. an industry average of 54.71%. Its TTM operating margin is 46.83% vs. an industry average of 34.52%, and its TTM pretax margin is 47.16% vs. an industry average of 33.79%.
The second airport operator on the list, Grupo Aeroportuario Del Sureste SA de CV, is based in southeast Mexico, which is home to Cancun, Cozumel, and Merida. The stock's TTM gross margin is 71.47% vs. an industry average of 54.71%. Its TTM operating margin is 60.41% vs. an industry average of 34.52%, and its TTM pretax margin is 59.83% vs. an industry average at 33.79%.
Interval Leisure Group provides global vacation services worldwide via its network of nearly 2900 resorts in over 80 countries. The stock's TTM gross margin is 62.11% vs. an industry average of 36.84%. TTM operating margin is 25.44% vs. an industry average of 19.3%, and its TTM pretax margin is 24.13% vs. industry average at 14.12%.
Las Vegas Sands Corp., owned by billionaire Sheldon Adelson, runs resort properties in the US (Las Vegas and Pennsylvania), Singapore, and Macau. The stock's TTM gross margin is 45.65% vs. an industry average of 36.84%. Its TTM operating margin is 26.13% vs. an industry average of 19.3%, and its TTM pretax margin is 23.76% vs. an industry average of 14.12%.
But back to international travel. A recently released travel report from MasterCard (NYSE:MA) determined that London will be the top travel destination this year. Bangkok came in second place, followed by Paris, Singapore, Dubai, New York, Istanbul, Kuala Lumpur, Hong Kong, and Seoul. Of the aforementioned stocks that are more profitable than their peers, Interval Leisure Group and Las Vegas Sands have the strongest presence in the top ten locations. Interval Leisure Group owns or offers member services at properties close to major airports in London, Paris, Singapore, Dubai, Kuala Lumpur, and Seoul, while Las Vegas Sends owns the Marina Bay Sands resort in Singapore.
At the end of market close on Thursday, July 10th, Las Vegas Sands' one-year return was 42.89%, while Interval Leisure Group had only returned 1.78% in the same period. Year-to-date, Las Vegas Sands has returned -5.0% compared to Interval Leisure Group's -29.85%. Within the last month, Las Vegas Sands and Interval Leisure Group have returned 2.60% and 1.07%, respectively.
Las Vegas Sands also boasts three consecutive years of rising diluted normalized EPS. The company's diluted normalized EPS increased 166.67% from $0.60 to $1.60 between 2010 and 2011. Its diluted normalized EPS rose 26.88% from $1.60 to 2.03 between 2011 and 2012, and increased 38.92% to $2.82 from $2.03 at the end of 2013. Meanwhile, Interval Leisure Group's diluted normalized EPS fell 2.74% from $0.73 to $0.71 between 2010 and 2011, then rose 28.17% to $0.91 at the end of 2012, and increased 53.85% to $1.40 at the end of 2013.
Both stocks reported revenue growth above the industry average of 8.84% last quarter: Interval Leisure Group's revenue rose by 16.43% from the same period a year ago, and Las Vegas Sands' revenue surged by an impressive 21.43%. Las Vegas continues to beat the industry average on a trailing twelve-month basis (24.05% vs. 8.12%) and over the last five years (25.69% vs. 7.16%). Interval Leisure Group, on the other hand, had below-average revenue growth during the same intervals: 7.97% vs. 8.12% and 3.97% vs. 7.16%.
Looking forward, Fidelity states that the Hotels, Restaurants & Leisure industry's average projected EPS growth between this year and the following year is 20.77%. Both stocks fall short of the average, with Interval Leisure Group expected to grow by 14.06% and Las Vegas Sands by 13.30%. The GBTA foresees travel prices growing by 1.9% this year, which is a pretty low rate; next year will be a different story as higher prices for hotels, rental cars, and restaurants, along with a consolidating airline industry, will drive up the cost of travel.
Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Business relationship disclosure: Kapitall is a team of analysts. This article was written by Mary-Lynn Cesar, one of our writers. We did not receive compensation for this article (other than from Seeking Alpha), and we have no business relationship with any company whose stock is mentioned in this article.