As the summer’s revenge travel trend becomes a thing of the past, the ongoing desire to escape continues to drive gains for travel stocks and excite investors. Bernstein analyst Richard Clarke has recently upgraded Tripadvisor (TRIP) and Booking Holdings (BKNG), the parent company of Priceline, citing a positive outlook for next year that is expected to keep propelling the sector forward.
Clarke emphasizes that the surprise highlight from third-quarter reporting was not just the resilience of consumers, but also the resilience of travel investors. Despite concerns related to macro factors, the market rewarded travel companies that demonstrated strong performance during this period.
In the past few weeks, both Tripadvisor and Booking Holdings, along with fellow online travel agency Expedia Group (EXPE), experienced significant jumps in their stock prices following robust earnings numbers and positive forecasts.
In the gambling sector, Caesars Entertainment (CZR) witnessed its largest percentage increase in nearly a year earlier this month, while Penn Entertainment (PENN) experienced a 14% jump in its stock price following a positive earnings report.
Among these stocks, Clarke has expressed the most optimism for Tripadvisor. He has upgraded his rating for the company to Outperform from Market Perform and raised his price target from $14.80 to $21.40. The third-quarter results demonstrate that Tripadvisor is successfully diversifying its revenue streams, contributing to Clarke’s positive outlook.
Overall, the desire to travel remains strong, fueling growth in the travel sector and providing opportunities for investors.
Boosted Ratings and Positive Outlook for Booking and Airbnb
Investment analyst Clarke has raised his rating on Booking to Market Perform from Underperform, along with increasing the price target to $2,940 from $2,600. This upgraded rating is based on strong leisure demand, positive pricing trends, and share buybacks that have resulted in higher earnings estimates. With these factors in mind, Clarke finds it difficult to envision a bearish scenario for the stock.
However, Clarke maintains his Outperform rating on Airbnb (ABNB) as he highlights the lodging industry’s potential for substantial revenue growth over the next two years. This projection is primarily due to a limited supply of accommodations coupled with continuous high demand, especially from luxury travelers.
The future revenue prospects are relatively clear. During their third-quarter call, Royal Caribbean management emphasized the robustness of 2024 bookings. Additionally, German travel company TUI (TUIFF) reports that Europeans are still spending on winter trips, while Booking has indicated a promising first quarter.
Winter leisure demand is typically more cyclical compared to summer demand. This aspect provides a favorable leading indicator for overall annual demand, according to Clarke.
This analysis aligns with the belief that while revenge travel may have reached its peak, consumers will continue to travel fervently.
However, it is important to note that airlines have not experienced the same level of success as other sectors in the tourism industry. To illustrate, both Delta Air Lines (DAL) and United Airlines (UAL) faced a decline in stock prices despite beating earnings expectations. Rising costs led to Delta’s announcement of corporate layoffs. In fact, several U.S. airlines hit fresh 52-week lows in mid-October due to these reports.
Nonetheless, for investors in other areas of the travel sector, the gains made by travel stocks could potentially offset the increasing costs of their next vacation.