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Summer's Not Over Yet
August has arrived and the only thing hotter than the weather in July were the markets. The S&P 500 continued the summer rally to reach its highest point in nine months, buoyed by positive economic data and an earnings season that saw the majority of companies announce strong earnings. That being said, it's tough to gauge where the markets will go from here. I for one see no reason why this rally cannot continue into September and see a clear opportunity to take advantage of some consumer optimism in the last days of summer.
IN PICTURES: Vacation Savings Tips
July and August: Getaway Season
Traditionally, July and August have been the peak season for companies in the travel and accommodations industry; however, with the economy where it is this summer, these companies have yet to see Americans hit the road for major vacations. Fortunately, there have been a few bright spots despite this trend, and some companies look like they might be able to bring in some revenues in these last weeks of summer. Online travel company Expedia (Nasdaq:EXPE) has seen its shares explode in the past five months. The stock is up over 220% since early march and 35% in just the past 30 days, recovering nicely from a 52-week low of $6 to sit at $20.50. The company announced its second-quarter earnings last week, which saw a drop of 57% from 2008; revenues were also down 3% over the same period. As troubling as those numbers were, Expedia still easily trumped analysts' estimates of 31 cents, posting earnings per share of 38 cents. The company also announced that gross bookings for Expedia fell 5%, faring much better than the 20% drop in airfare revenue seen worldwide.
Expedia's primary competitor, Priceline.com (Nasdaq:PCLN), has also seen its shares climb since March; it's up over 60% to sit at $129, reaching a new 52-week high in the process. Priceline has proved that its business model can survive any market. By offering discounted flights and hotels from major airlines and hotels to online travelers, Priceline has been able to take on the discounter's role in a market where those sorts of companies are thriving. Priceline also recently announced a partnership with Ticketmaster (Nasdaq:TKTM) that would allow Ticketmaster customers to book their travel arrangements via Priceline directly through the Ticketmaster site. It's a great partnership as far as synergy is concerned. Analysts expect Priceline to come in at earnings of $1.76 when the company announces its second-quarter results August 10. If history is any indication, Priceline looks primed to announce strong top- and bottom-line numbers. The company has handily beaten analyst estimates in each of the previous four quarters and I see no reason to believe that they won't do it again.
Staying with the travel theme, hotel companies have fared better than anticipated in 2009 as well. Starwood Hotels (NYSE:HOT) and Marriott International (NYSE:MAR) have seen their shares rise 31% and 11% year-to-date. And since the market lows of early March, Starwood is up close to 150%, while Marriott climbed 70%. Starwood's second-quarter earnings beat analysts' estimates last week, coming in at 74 cents per share (22 cents if you exclude one-time items), while expectations hovered around 17 cents.
Marriott's second quarter was not so kind. Although Marriott beat Wall Street estimates, earnings were still down 76% and guidance for Q3 suggests that things may end up getting worse for the hotel company before they get better, with revenues per available room (RevPAR) expected to decline 20-24%. The company has done an admirable job at cutting costs to give shareholders maximum value, and some analysts argue that the domestic travel market should pick up sooner than the worldwide market.
One more hotel company that may prove its resilience in these last weeks of summer is Choice Hotels International (NYSE:CHH), which operates such franchises as Comfort Inn and Econo Lodge. This low-priced hotel company has not fared well in 2009, with shares down 7%. However the stock has risen 20% since March and 13% in the last three weeks alone. Choice Hotels recently announced second-quarter earnings that were in line with analyst estimates and provided third-quarter guidance that met expectations as well. The company's value-oriented brands give travelers a lower priced option when vacationing and the company could reap the benefits of lower gas prices and upbeat economic news, which might just be the push Americans have been waiting for before scheduling a trip.
Bottom Line
If the summer rally in the markets continues into August, these travel and hotel stocks could ride the momentum into strong performances in September and better-than-expected third-quarter earnings in the fall.
For additional reading check out Globetrotting on a Budget and 7 Ways To Save On Summer Getaways . Also, use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!
IN PICTURES: Vacation Savings Tips
July and August: Getaway Season
Traditionally, July and August have been the peak season for companies in the travel and accommodations industry; however, with the economy where it is this summer, these companies have yet to see Americans hit the road for major vacations. Fortunately, there have been a few bright spots despite this trend, and some companies look like they might be able to bring in some revenues in these last weeks of summer. Online travel company Expedia (Nasdaq:EXPE) has seen its shares explode in the past five months. The stock is up over 220% since early march and 35% in just the past 30 days, recovering nicely from a 52-week low of $6 to sit at $20.50. The company announced its second-quarter earnings last week, which saw a drop of 57% from 2008; revenues were also down 3% over the same period. As troubling as those numbers were, Expedia still easily trumped analysts' estimates of 31 cents, posting earnings per share of 38 cents. The company also announced that gross bookings for Expedia fell 5%, faring much better than the 20% drop in airfare revenue seen worldwide.
Expedia's primary competitor, Priceline.com (Nasdaq:PCLN), has also seen its shares climb since March; it's up over 60% to sit at $129, reaching a new 52-week high in the process. Priceline has proved that its business model can survive any market. By offering discounted flights and hotels from major airlines and hotels to online travelers, Priceline has been able to take on the discounter's role in a market where those sorts of companies are thriving. Priceline also recently announced a partnership with Ticketmaster (Nasdaq:TKTM) that would allow Ticketmaster customers to book their travel arrangements via Priceline directly through the Ticketmaster site. It's a great partnership as far as synergy is concerned. Analysts expect Priceline to come in at earnings of $1.76 when the company announces its second-quarter results August 10. If history is any indication, Priceline looks primed to announce strong top- and bottom-line numbers. The company has handily beaten analyst estimates in each of the previous four quarters and I see no reason to believe that they won't do it again.
Marriott's second quarter was not so kind. Although Marriott beat Wall Street estimates, earnings were still down 76% and guidance for Q3 suggests that things may end up getting worse for the hotel company before they get better, with revenues per available room (RevPAR) expected to decline 20-24%. The company has done an admirable job at cutting costs to give shareholders maximum value, and some analysts argue that the domestic travel market should pick up sooner than the worldwide market.
One more hotel company that may prove its resilience in these last weeks of summer is Choice Hotels International (NYSE:CHH), which operates such franchises as Comfort Inn and Econo Lodge. This low-priced hotel company has not fared well in 2009, with shares down 7%. However the stock has risen 20% since March and 13% in the last three weeks alone. Choice Hotels recently announced second-quarter earnings that were in line with analyst estimates and provided third-quarter guidance that met expectations as well. The company's value-oriented brands give travelers a lower priced option when vacationing and the company could reap the benefits of lower gas prices and upbeat economic news, which might just be the push Americans have been waiting for before scheduling a trip.
Bottom Line
If the summer rally in the markets continues into August, these travel and hotel stocks could ride the momentum into strong performances in September and better-than-expected third-quarter earnings in the fall.
For additional reading check out Globetrotting on a Budget and 7 Ways To Save On Summer Getaways . Also, use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!
by
Investopedia Staff
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