After the conclusion of the troubled and controversial Rio Olympics, many are undoubtedly looking forward to life without Zika.
An infectious disease typically transmitted through mosquito bites, the Zika virus was a constant dark cloud hanging over Rio. The Centers for Disease Control and Prevention issued a travel warning, particularly for pregnant women because of Zika’s ability to cause birth defects.
However, in this interconnected world, very few events occur in a vacuum.
Take Great Britain as a prime example. The vastness of the Atlantic Ocean separates it from infected countries in the Americas. Yet according to The Telegraph, 50 British residents have contracted the Zika virus due to personal travel and tourism in affected regions. Officially, the likelihood of British athletes and spectators contracting Zika is low. But with millions attending the Rio games, these statistics are hardly reassuring.
Due to the proximity of the Zika virus outbreak, the U.S. is at greater risk. About a month prior to the Rio games, researchers found two types of Zika-carrying mosquitoes that are common in southern states. Florida is especially vulnerable, having recorded one of the first cases of the Zika virus in America.
With the Sunshine State’s tourism industry accounting for $90 billion in revenue, the threat of financial harm is a very real danger. Ratings agency Moody’s Investors Service has a downbeat assessment on Puerto Rico, citing the Zika virus as a headwind on tourism dollars. Not only that, national businesses that have significant exposure to Florida may see a revenue hit.
It’s becoming more evident that Zika is a dynamic problem that needs an immediate solution. While we get there, here are three tourism stocks that may be at significant risk.
Travel Stocks Wary of Zika: Delta Air Lines, Inc.Delta Air Lines, Inc. (NYSE:DAL) and its competitors are in a uniquely bad situation when it comes to the Zika virus. By the nature of their business, they are the primary vehicle for global transmission of diseases. The negative impact on tourism will also cut into their top-line growth. Even worse, DAL has been forced to make margin-cutting accommodations due to the CDC’s travel warnings.
Although the accommodations are not unique among airlines, the timing is incredibly unfavorable for DAL investors. Delta is one of few major carriers that has strong revenue growth over the past few years. But over the last four quarters, sales growth has declined on average by 1.5%. This is particularly problematic, as DAL gets its fair share of tourism dollars during the summer season.
Early this year, airlines were questioning the Zika impact on tourism. Now, there’s simply no doubt. DAL stock is down 28% year-to-date, while rivals United Continental Holdings Inc. (NYSE:UAL) and American Airlines Group Inc (NASDAQ:AAL) are also deeply in the red. Despite beating on earnings, DAL stock this year has mostly traded underneath its 50-day moving average. That’s worrisome in light of the Zika headwind that could potentially spread to other locales.
Currently, DAL is a case of being at the wrong place at the wrong time.
Travel Stocks Wary of Zika: Tripadvisor Inc (TRIP)
In January of this year, Zika was largely an exotic dilemma. Many tourism booking agencies noted that clients were unaware of the CDC’s warnings concerning the virus. Thus, the Zika effect was forecast to be minimal.
But with infections reported in Florida and health inspectors scrambling to find answers, the threat is now localized. That’s bad news for Tripadvisor Inc (NASDAQ:TRIP), which has been feeling the heat throughout much of this year.
To be fair, the present troubles for TRIP have been a long time in the making. While revenues have doubled over the past four years, efficiency has been on the decline. Operating margins for TRIP stock are down 60%, and net margins have slipped by 48%. Even top-line growth shouldn’t be taken for granted. The past two quarters for TRIP have produced average year-over-year sales losses of 3%.
All of this points to an investment opportunity that has now found itself out of favor with Wall Street. TRIP stock is down an alarming 26% YTD.
Since hitting record highs in the summer of 2014, successive peaks in the following years have failed to come close to challenging those levels. Essentially, TRIP has been trending in a long-term bearish channel with no hint of an imminent recovery.
Zika certainly didn’t kill TRIP stock, but it’s not doing it any favors either.
Travel Stocks Wary of Zika: Denny’s Corporation (DENN)
The restaurant industry may not be the first thing that comes to mind when discussing the Zika virus impact. However, Denny’s Corporation (NASDAQ:DENN) is caught in the crossfire.
As a 24-hour eatery, DENN operates stores close to highways and other high-visibility areas. They live and breathe off of volume. Anything that negatively affects tourism is sure to trickle down to DENN.
More ominously, the company derives roughly 10% of its total sales from the at-risk state of Florida.
In terms of margins, DENN runs a fairly reasonable operation. It’s sales growth that really needs to improve, and that’s exactly where Zika threatens the most. Relative to prior years, fiscal year 2015 was a success, with revenue gains of 4%. However, in the most recent quarter, sales slipped to less than 1% growth. That’s going to make investors nervous, especially if tourism continues to be pressured.
With a YTD performance of over 10%, DENN stock is easily the winner among the featured companies. However, since the final week of July, DENN is down about 8%. Shares recently slipped under its 50-day moving average, which suggests declining momentum. The recent bearishness is also preventing DENN from approaching its highs of last year.
As with the other names, DENN isn’t going to come undone because of the Zika virus, but the disease is creating unwanted difficulties.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.