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3 Stocks to Ride the Travel Rebound

These companies are best positioned to benefit from increased demand for summer vacations, and a return of travelling activity to normal levels.

Vikram Barhat 16 June, 2021 | 3:32AM
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Things are looking up in the travel sector as the light at the end of the pandemic tunnel becomes brighter. Recent studies both in the U.S. and Canada show homebound consumers can’t wait to get away from a life of pandemic-induced monotony.

A sharp pick up in cross-border travel is expected as soon as international travel restrictions are lifted and popular vacation destinations open their doors. This gives battered global travel and tourism sector, bruised by a loss of nearly US$4.5 trillion, hope that a season of bumper earnings may be around the corner.

The following companies are leading constituents of the online travel market. They’re best positioned to benefit from the prospect of increasing demand for summer vacations and a return of travelling activity to normal levels.

Booking Holdings Inc 

 

Ticker

BKNG

 

Current yield:

-

 

Forward P/E:

59.17

 

Price

US$2,304

 

Fair value:

US$2,340

 

Value

Fairly valued

 

Moat

Narrow

 

Moat Trend

Positive

 

Star rating

***

Data as of June 14, 2021

World’s largest online travel agency by sales, Booking (BKNG) offers booking services for hotel and alternative accommodation rooms, airline tickets, rental cars, cruises, experiences, and other vacation packages. The company operates Booking.com, Agoda, OpenTable, and Rentalcars.com.

Booking has maintained solid financial health, while negotiating the negative impact of COVID-19 on travel demand. “We expect Booking's global online travel agency leadership position to expand over the next decade, driven by a healthy position in Asia-Pacific, continued leadership in Europe (near 50% of total bookings), and an expanding presence in vacation rentals, restaurant bookings, and experiences,” says a Morningstar equity report.

The online travel agency has built a leading network of hotel properties and other services, bulking up its user base. “We see this network effect continuing to expand in both developed and emerging markets, as well as vertical markets such as rentals and attractions, resulting in a full connected trip offering,” says Morningstar equity analyst Dan Wasiolek, who recently upped the stock’s fair value from US$2,280 to US$2,340, forecasting Booking's sales to reach mid-60% of 2019 levels in 2021, with a full recovery by 2023.

Booking.com is a top-10 travel application in 131 markets versus 75 for Airbnb, and 15 for Expedia, according to App Annie on May 9, 2021.

Expedia Inc

 

Ticker

EXPE

 

Current yield:

-

 

Forward P/E:

-

 

Price

US$170.94

 

Fair value:

US$151

 

Value

Fairly valued

 

Moat

Narrow

 

Moat Trend

Stable

 

Star rating

***

Data as of June 14, 2021

Expedia (EXPE) is the world's largest online travel agency, offering a range of services including lodging (78% of total 2020 sales), air tickets (2%), advertising (8%), and rental cars, cruises, in-destination, and other (12%). Its branded travel booking sites include Expedia.com, Hotels.com, Travelocity, Orbitz, Wotif, AirAsia, among others. Expedia expanded into travel media through the acquisition of Trivago.

By the end of 2020, Expedia had 2.9 million properties comprising around 2 million alternative accommodation listings and 880,000 hotel units. Expedia app ranks as a top-10 travel iOS mobile application in 15 countries. “We expect this network effect to remain over the next decade, although supplier consolidation creates some headwinds in U.S. markets,” says a Morningstar equity report, noting that owing to its strong network effect, Expedia has around 30% share of the global online travel agency booking market.

Expedia’s network advantage could get a further boost as it invests to expand its international presence. In emerging markets, the company has improved its position by partnering with leading Chinese online travel agency CTrip. “This is crucial, as China will contribute around 30% of industry online booking growth over the next five years,” says Wasiolek, who recently raised the stock’s fair value from US$143 to US$151, prompted by a stronger recovery in travel demand. 

Sabre Corp

 

Ticker

SABR

 

Current yield:

-

 

Forward P/E:

-

 

Price

US$14.02

 

Fair value:

US$17.10

 

Value

16% discount

 

Moat

Narrow

 

Moat Trend

Negative

 

Star rating

****

Data as of June 14, 2021

Sabre (SABR) provides technology solutions to the global travel and tourism industry. It holds more than 40% share of global distribution system (GDS) air bookings. The company offers tours and travel services, as well as online reservations for airlines, hotels, cruises, and vacation packages. The travel solutions segment accounts for 88% of total revenue, while 12% revenue comes from its growing hotel IT solutions division.

“Despite material near-term travel demand headwinds driven by the coronavirus, we expect Sabre to expand its position in GDS over the next several years, driven by a leading network of airline content and travel agency customers,” says a Morningstar equity report.

Sabre is also a leader in providing technology solutions to travel suppliers. Sabre's GDS enjoys a powerful network advantage and as more supplier content (predominantly airline content) is added, more travel agents use the platform,” says Wasiolek, who puts the stock’s fair value at US$17.10.

Sabre’s air bookings are forecast by Morningstar to reach half of 2019 levels this year, after it hit 34% of pre-pandemic levels in April. “Demand in North America offers hope of reaching this target, with regional air volume improving to 32% of 2019 levels in the first quarter, up from 25% last quarter, with April showing a further lift to 46% of prepandemic marks as vaccination uptake in the region increases,” notes Wasiolek.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar Rating
Booking Holdings Inc2,060.29 USD-0.92Rating
Expedia Group Inc105.93 USD-0.85Rating
Sabre Corp6.01 USD-1.64Rating

About Author

Vikram Barhat

Vikram Barhat  Vikram Barhat is a Toronto-based financial writer specializing in investing, stock markets, personal finance and other areas of the financial services industry. He also writes for CNBC, BBC, The Globe and Mail, and Toronto Star.

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