Travel services stocks have fared well recently, with earnings and share prices sharply up at most leading companies since the 2008-09 recession. Also, expectations and rising, as are analyst forward year earnings estimates, that operating metrics will be increasing favorable looking ahead as demand rises for lodging and other travel related services while the supply, especially in the lodging industry, is stagnant due to lower investment since the recession. We believe now maybe a good time to scout for investments in the sector.
In this article, via an analysis based on the latest available Q4 institutional 13-F filings, we identify the travel services company stocks that are being accumulated and those being distributed by the world's largest fund managers. We have included in this group companies operating in the lodging, casino, cruise ship, auto rental, and travel agency industries. These mega managers, managing between $50 billion and over $700 billion in 13-F assets, control over 35% of the assets invested in the U.S. equity markets, but number just over 30 out of the tens of thousands of funds that invest in the U.S. equity markets. Taken together, they are bearish on the group, cutting a net $1.68 billion in Q4 from their $65.08 billion prior quarter holdings in the group.
The following are the travel services companies that these mega fund managers are most bullish about, that are undervalued compared to their peers, and are also outperforming YTD (see Table):
Starwood Hotels & Resorts Worldwide (HOT): HOT is one of the world's largest hotel and leisure companies, primarily operating luxury and upscale full service hotels and resorts under the brand names of St. Regis, The Luxury Collection, W, Westin, Le Meridien, Sheraton, Four Points, Allott and Element. Mega funds together added a net $382 million in Q4 to their $4.40 billion prior quarter position in the company, and taken together mega funds hold 43.0% of the outstanding shares. The top buyers were T Rowe Price Associates, with $288 billion in 13-F assets ($327 million) and Goldman Sachs Group, with over $700 billion in assets under management ($202 million), with the top holders being T Rowe Price ($1.11 billion) and Vanguard Group, with $1.6 trillion in assets under management ($592 million).
HOT reported its Q1 (March) the week before last, on Thursday, beating analyst revenue and earnings estimates (63c v/s 51c), and guiding Q2 EPS in-line and FY 2012 EPS higher ($2.35-$2.46 v/s $2.32). Its shares initially up after the report are now about flat, up about 19% YTD, more than the average 16% increase for the average travel services stock as represented by the PowerShares Dynamic Leisure & Entertainment ETF ($PEJ), and also the 14% average increase for the Gaming ETF ($BJK).
HOT shares currently trade at 21 forward P/E and 3.6 P/B compared to averages of 29.8 and 4.5 for its peers in the hotels and motels group. Meanwhile, earnings, are projected to rise at a respectable 13.1% annual rate from $2.12 in 2011 to $2.71 in 2013, based on expectations that the lodging sector will rebound going forward, and that HOT's diversified global exposure to some of the world's top growing markets will help it capture some of that growth.
Wyndham Worldwide Corp. (NYSE:WYN): WYN is a leading hospitality company that if a franchisor of over 7,200 hotels worldwide under the Wyndham, Super 8, Howard Johnson, Microtel, Days Inn and other brands, and it also offers vacation ownership, rental and exchange services. Mega funds together added a net $39 million in Q4 to their $1.80 billion prior quarter position in the company, and taken together mega funds hold 24.4% of the outstanding shares. The top buyers were mutual fund powerhouse Fidelity Investments, with $492 billion in 13-F assets ($41 million) and Wellington Management, with $254 billion in 13-F assets ($38 million), and the top holders were Vanguard Group ($444 million) and Fidelity Investments ($363 million).
WYN reported its Q1 (March) the week before last, on Thursday, beating analyst revenue and earnings estimates (60c v/s 55c), and guiding FY 2012 EPS higher. Its shares already in a strong rally prior to the report have accelerated upwards, up 37% YTD v/s the 14%-16% increase for the average stock in the group. Even after the huge rally, the shares still trade at just 14-15 forward P/E and 3.5 P/B compared to the averages of 29.8 and 4.5 for its peers in the hotels and motels group. Analysts, meanwhile keep raising their forward year estimates, now at $3.57 for FY 2013 from $3.37 just 90 days ago, and projected to rise at a strong 19.7% annual rate from $2.49 in FY 2011.
The following are some additional travel services company stocks that mega fund managers accumulated in Q4 (see Table):
- TripAdvisor Inc. (NASDAQ:TRIP), a new IPO in Q4 of 2011, that is an online travel research company, aggregating reviews and opinions of members about destinations and accommodations such as hotels, resorts, restaurants, vacation packages and travel guides, in which mega funds together held a new $1.53 billion position at the end of Q4;
- MGM Resorts International (NYSE:MGM), that owns and operates casino resorts in the U.S., and offers gaming, hotel, dining entertainment, retail and other resort amenities at its casinos, in which mega funds together added a net $45 million in Q4 to their $1.40 billion prior quarter position in the company; and
- Zipcar Inc. (ZIP), that is engaged in operating an innovative self-service car sharing network across more than 14 cities and 230 college campuses in the U.S., Canada, and the U.K., in which mega funds together added a net $4 million in Q4 to their $46 million prior quarter position in the company.
Besides these, mega fund managers based on their Q4 trading activity indicated that they are bearish on the following travel services company stocks:
- Priceline.com Inc. (NASDAQ:PCLN), the pioneer of name-your-own price service, that is a diversified online travel services company. It provides airline ticket, hotel room, car rental, vacation package, and cruise services through Priceline.com, in which mega funds together cut a net $865 million in Q4 from their $16.02 billion prior quarter position;
- Las Vegas Sands Corp. (NYSE:LVS), an owner, developer and operator of various integrated resort properties in the U.S., Macau, and Singapore, in which mega funds together cut a net $754 million in Q4 from their $7.78 billion prior quarter position;
- Wynn Resorts Ltd. (NASDAQ:WYNN), an operator of casinos in Las Vegas and Macau, in which mega funds together cut a net $119 million in Q4 from their $3.07 billion prior quarter position;
- Royal Caribbean Cruises (NYSE:RCL) that operates in the cruise vacation industry in North America and internationally, in which mega funds together cut a net $109 million in Q4 from their $858 million prior quarter position;
- Melco Crown Entertainment (MPEL), an operator of casinos in Macau, the former Portuguese colony now a part of China, in which mega funds together cut a net $84 million in Q4 from their $555 million prior quarter position; and
- Seven Days Group Holdings ADR (NYSE:SVN), a Chinese hotel chain manager operating over 550 hotels with over 55,000 total rooms, in which mega funds together cut a net $5 million in Q4 from their $14 million prior quarter position.
Credit: Fundamental data in this article were based on SEC filings, Zacks Investment Research, Thomson Reuters and Briefing.com. The information and data is believed to be accurate, but no guarantees or representations are made.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
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