Shares in the travel and leisure industry are increasingly catching the eye of value investors, presenting discounted valuations alongside promising growth prospects for the upcoming tourist season.
Since the start of the current bull-market rally, major industry exchange-traded funds (ETFs) tracking travel and leisure companies have underperformed relative to the broader stock market.
The Defiance Hotel, Airline, and Cruise ETF CRUZ, the Alps Global Travel Beneficiaries ETF JRNY, and the AdvisorShares Hotel ETF BEDZ have gained 28%, 24.5%, and 22.8%, respectively, compared to a 29% surge in the SPDR S&P 500 ETF Trust SPY since late October 2023.
Yet, the outlook for travel-related stocks is improving, drawing interest from traders looking to invest in underperforming sectors amid the broader bull market.
Chart: Travel Stocks Lagged Behind The Broader S&P 500 In The Current Bull-Market Rally
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What Happened: On Tuesday, Airbnb Inc. ABNB and Norwegian Cruise Holdings Ltd. NCLH received analyst upgrades.
Wedbush upgraded Airbnb Inc. from Neutral to Outperform, raising the price target from $160 to $165.
Analyst Scott Devitt suggested investors should capitalize on this period of relative weakness, seeing potential upside to near-term estimates following conservative second-quarter guidance.
He emphasized Airbnb’s strong growth prospects and significant potential as the company expanded beyond its core offerings. Wedbush highlighted Airbnb’s leading competitive position in the alternative accommodation market and opportunities for growth in adjacent products and services.
"We believe the company's expansion will start with the relaunch of Airbnb experiences, with an announcement likely within the next 6-12 months," Wedbush noted. The analyst increased estimates for the second quarter and second half revenue and adjusted EBITDA by 1% and 3%, respectively.
Shares of Airbnb Inc. rose 1.69% to $146.91 on Tuesday at publication.
Mizuho Securities upgraded Norwegian Cruise Holdings from Neutral to Buy, raising the price target from $21 to $24.
Executive Director Ben Chaiken noted a shift in sentiment towards the cruise line, driven by compelling valuations, improving business efficiency and a favorable industry backdrop.
"Valuation has completely reset," Chaiken remarked, highlighting that Norwegian Cruise has underperformed peer Royal Caribbean Cruise Ltd. RCL by 160% since January 2023.
Mizuho Securities raised revenue forecasts from $9.35 billion to $9.41 billion for 2024, and from $9.97 billion to $10.13 billion for 2025, also boosting EBITDA forecasts.
"Together, we find the risk/reward particularly compelling at current levels, with upside/downside of approximately 6:1," Chaiken stated.
Shares of Norwegian Cruise Holdings rose 3.91% to $16.63 on Tuesday at publication.
Top 10 Travel & Leisure Stocks With The Highest Upside Potential
Currently, the Street’s median price target on Airbnb and Norwegian Cruise Holdings is about 2.2% and 19.7% higher than current prices.
Examining Travel & Leisure stocks included in the iShares Russell 1000 ETF IWB, the stocks with the highest upside potential based on the difference between the median Street price target and current prices are:
| Name | Median target (% vs. current price) |
|---|---|
| Caesars Entertainment, Inc. CZR | 61.27% |
| MGM Resorts International MGM | 43.40% |
| Carnival Corporation CCL | 40.66% |
| Las Vegas Sands Corp. LVS | 38.10% |
| Wynn Resorts, Limited WYNN | 34.45% |
| Boyd Gaming Corporation BYD | 33.40% |
| Alaska Air Group, Inc. ALK | 30.58% |
| Expedia Group, Inc. EXPE | 29.13% |
| United Airlines Holdings, Inc. UAL | 28.30% |
| Wyndham Hotels & Resorts, Inc. WH | 27.16% |
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