Buy the Dip: 2 Oversold Travel Stocks
Although the travel industry rebounded from its pandemic lows last year with the lifting of COVID-19 restrictions, rising inflationary pressure and a potential recession due to the Fed's hawkish stance...
Although the travel industry rebounded from its pandemic lows last year with the lifting of COVID-19 restrictions, rising inflationary pressure and a potential recession due to the Fed's hawkish stance have driven a massive stock market sell-off lately, causing many travel stocks to enter oversold territory. However, increasing advanced bookings for summer vacations will likely help travel stocks rebound. So, we think it could be wise to bet on oversold travel stocks Expedia Group (EXPE) and Travel + Leisure (TNL) before they rebound. Let's discuss.
Strong progress on the vaccination front and the lifting of COVID-19 restrictions allowed the travel industry to rebound slightly last year. But worries over the Russia-Ukraine war and aggressive interest rate hikes to fight decade-high inflation have driven significant market disruptions this year, causing travel stocks to perform poorly. Last week, a broad-based sell-off pushed many travel stocks into oversold territory.
So, we think it could be an opportune time to pick oversold travel stocks Expedia Group, Inc. (EXPE) and Travel + Leisure Co. (TNL). Based on their sound fundamentals and high profitability, these stocks could rebound soon.
Expedia Group, Inc. (EXPE)
EXPE in Bellevue, Wash., is an international online travel company that operates through Retail; B2B; and trivago segments. The company offers a wide range of travel shopping and reservation services, advertising, and media services and provides real-time access to schedule, pricing, and availability information for airlines, hotels, and car rental companies.
On May 4, 2022, at its EXPLORE 22 annual partner event, EXPE debuted a three-tiered strategy to serve travelers and its partners and redefine its place in the industry. Expedia Group Open World, its new technology platform, leverages and configures products and services and accelerates and enhances the travel business. It introduced a reimagined marketplace that uses traveler reviews, customer service interactions, and more to reward each hotel property with a new guest experience score. It also introduced trip boards, smart shopping, and price tracking features to add confidence and trust to the travel shopping and booking experience. This should help EXPE gain wide recognition across the industry.
For its fiscal 2022 first quarter ended March 31, 2022, EXPE's revenue increased 80.5% year-over-year to $2.25 billion. The company's adjusted EBITDA came in at $173 million, compared to a $58 million loss in the prior-year period. As of March 31, 2022, the company had $5.55 billion in cash and cash equivalents.
Analysts expect EXPE's EPS to grow 340.6% year-over-year to $7.27 for its fiscal 2022, ending Dec. 31, 2022. It surpassed the Street EPS estimates in three of the trailing four quarters. The $11.75 billion consensus revenue estimate for the same fiscal year represents a 36.7% rise from the prior-year period. The company's EPS is expected to grow at a 22.8% rate per annum over the next five years.
EXPE's trailing-12-month gross profit margin, EBITDA margin, and levered free cash flow margin are 83.5%, 7.3%, and 34.2%, respectively. Over the past week, the stock has declined 24.3% in price and closed yesterday's trading session at $127.79, down 39.2% from its 52-week high of $217.72.
The stock's POWR Ratings reflect this promising outlook. It has an overall B rating, which equates to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
Travel + Leisure Co. (TNL)
TNL in Orlando, Fla., provides hospitality services and products through its Vacation Ownership; and Travel and Membership segments. The company focuses on providing vacation ownership, managed rental, and exchange services and owns vacation resorts and exchange properties. It also offers private-label travel booking technology solutions. As of Jan. 26, 2022, it had approximately 245 vacation ownership resorts.
On April 21, 2022, TNL's Wyndham Destinations vacation ownership business announced the completion of solar panel installation at its Limetree Beach Resort by Club Wyndham and will finish installation at the WorldMark Clear Lake Resort in Nice, California, this spring. In addition, it is installing water use reduction and leak detection technologies in guest suites that cut water use by 15-17%. TNL will have an estimated annual solar output of more than nine million kilowatt-hours at 19 properties across the U.S. The company plans to invest in opportunities to reduce water and energy use across its portfolio of 245 resorts.
TNL's net revenues for its fiscal 2022 first quarter, ended March 31, 2022, increased 28.8% year-over-year to $809 million. The company's operating income came in at $117 million, up 34.5% from the prior-year period. While its adjusted net income increased 76.5% year-over-year to $60 million, its adjusted EPS grew 76.9% to $0.69. The company had $381 million in cash and cash equivalents as of March 31, 2022.
Analysts expect the company's EPS to hit $4.55 for its fiscal 2022 ending Dec. 31, 2022, representing a 24.7% rise from the prior-year period. It surpassed the Street's EPS estimates in three of the trailing four quarters. The $3.63 billion consensus revenue estimate for the same fiscal year indicates a 15.7% year-over-year improvement. Analysts expect TNL's EPS to improve at a 25.8% rate per annum over the next five years.
TNL's trailing-12-month gross profit margin, EBITDA margin, and levered free cash flow margin are 49.7%, 24.5%, and 22.3%, respectively. And over the past week, the stock has declined 4.6% in price and ended yesterday's trading session at $48.93, down 20.5% from its 52-week high of $66.56.
TNL's strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which equates to Buy in our proprietary rating system.
It has a B grade for Value, Sentiment, and Quality. Click here to see the additional ratings for TNL (Stability, Growth, and Momentum). TNL is ranked #5 of 22 stocks in the Travel - Hotels/Resorts industry.
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EXPE shares were trading at $130.82 per share on Tuesday morning, up $3.03 (+2.37%). Year-to-date, EXPE has declined -27.61%, versus a -15.06% rise in the benchmark S&P 500 index during the same period.
About the Author: Sweta Vijayan
Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. She's passionate about educating investors, so that they may find success in the stock market.
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