With a good deal of pent-up travel demand, keep an eye on experience stocks. For one, according to SWNSDigital.com, 80% of Americans say they need a vacation in 2023 “more than ever before.” Two, according to Hospitalitynet.org, “The most recent American Travel Sentiment Study indicates that 92% of Americans have travel plans in the next six months, which is among the highest level of travel seen since the beginning of the pandemic. While other industries may see a slowdown, people are reluctant to give up travel and experiences again.” Three, even with fears of a potential recession and inflation, travel demand shows no clear signs of slowing down. That being said, investors may want to pay close attention to experience stocks, such as:
|MLCO||Melco Resorts & Entertainment||$11.07|
Vail Resorts (MTN)
Vail Resorts (NYSE:MTN) should benefit from strong skier demand. For the 2021-22 ski season, there were a total of 61 million skier visits, a noted by The National Ski Areas Association. That was up 3.5% year over year, and continues to rebound in the wake of the pandemic. “Strong season pass sales and a continued desire for outdoor recreation are two of the primary contributing factors to the season’s record-breaking result,” they said, as reported by TravelWeekly.com.
For the current year, fiscal 2023, Vail Resorts continues to expect net income of $321 million to $396 million and EBITDA of $893 million to $947 million. Analysts, on average, expect the company to report $10.11 of earnings per share next year. That estimate, however, may be a bit low, since most analysts are too pessimistic about the economy’s outlook and consumer spending.
If Vail’s EPS next year comes in at $11, which happens to match the estimate of the most bullish analyst ,the shares would be trading at a forward P/E ratio of 24. That is not overly demanding for a company whose top line analysts, on average, expect to climb 16% this year and another 5,5% next year.
Hilton (NYSE:HLT) owns multiple higher class hotel brands, including Waldorf Astoria, Hilton Hotels & Resorts, and Hilton Garden Inn. It also owns some brands that focus on upper middle class consumers, including Hampton, Embassy Suites, and Homewood Suites. As a result, the company is well-positioned to benefit from the excursions of wealthy and upper middle class consumers next year.
In late Oct., the company increased its full-year profit numbers, noting it expects for travel demand to remain strong, even with a slower economy. In fact, it raised its full-year adjusted EPS forecast to between $4.46 and $4.54, from $4.21 and $4.46. Third quarter numbers were just as encouraging, with Hilton reporting adjusted EPS of $1.31 on sales of $2.37 billion. While EPS was above expectations for $1.25, revenue fell short of estimates for $2.41 billion.
Most recently, Morgan Stanley started coverage of HLT stock with a $171 price target and an “overweight” rating. The firm believes that the company is “best in class” when it comes to increasing its free cash flow and its “net units.” Better, the company just increased its share repurchase allocation by a hefty $2.5 billion. That shows that the company is upbeat on its outlook and on the future of HLT stock.
It’s true that Tesla (NASDAQ:TSLA) has more than its share of problems right now. However, its brand is extremely strong worldwide. Better, the company is viewed as one of the top experience stocks. When I was touring a very wealthy senior community on Long Island, NY in March 2021 with one of my relatives who lives there, he noted that many of the community’s residents own Teslas. Further, the automaker is well-positioned to benefit a great deal from new tax credits for EVs that will kick in in the U.S. starting next month. And unlike in the past, the stock’s valuation isn’t huge. In fact, TSLA stock is now trading at a forward price-earnings ratio of just 29.
Alaska Airlines (ALK)
On Dec. 14, CNBC’s Jim Lebenthal, called Alaska Air (NYSE:ALK) the “best of the bunch.” The analysts added the airline is ready to start its share buyback program, which reflects the company’s “strong balance sheet and their projections for strong financial performance in 2023.” In addition, ALK expects its top line to jump 13% to 14% this quarter versus the same period in 2019. Better, analysts at Citi just initiated a buy rating on the ALK stock, with a $55 price target. The firm added, “The carrier’s strong pricing, traffic flow from its partner airlines, and re-fleeting look attractive,” as quoted by Barron’s.
Cedar Fair (FUN)
Amusement and water park operator, Cedar Fair (NYSE: FUN) reported strong financial results in 2022, driven by middle-class families who want to give their children “fun” experiences and happy memories. I expect that trend to continue well into 2023.
Additionally, I believe that Cedar Fair and its peers have been significantly helped by steep ticket price increases from Disney (NYSE:DIS). It now costs $124 to$159 per person per day to visit Disney’s Magic Kingdom Park. With the prices for Disney’s parks getting beyond the reach of many American middle class families, the demand for Cedar Fair’s park could surge in 2023. In addition, Cedar Fair has already reported that it expects to set records for sales and adjusted EBITDA.
In addition, Deutsche Bank analyst Chris Woronka maintained a Buy rating on the stock, with a lowered price target of $55 (was $63). Also, as noted by Insider Monkey, “2023 is most likely to represent ‘something of a normalization of park trends, not a new paradigm’ in terms of maintaining or increasing per caps from historically resilient levels if attendance completely recovers to pre-COVID levels.”
Caesar’s Entertainment (CZR)
With regards to Caesar’s Entertainment (NASDAQ:CZR), Deutsche Bank recently predicted that CZR would deliver powerful financial results in 2023. The firm cited Las Vegas’ “compelling” positive catalysts, including the resurgence of group travel, international tourism, and events in the city. Additionally, the bank expects CZR, along with MGM Resorts (NYSE:MGM), “to outperform peers in domestic regional markets, given company specific initiatives and comparisons.”
Much like MGM, Caesar’s should be able to benefit from cross selling among its brick-and-mortar casino customers and its sports-betting customers. Those who are bearish on CZR like to tout its high debt load. But the company is making more than enough money to pay off its debt.
Melco Resorts & Entertainment (MLCO)
Melco Resorts & Entertainment (NASDAQ:MLCO) owns and operates three casino-and-hotel facilities in Macau. It also owns and operates a casino-and-hotel facility in the Philippines and is building such a business in the Southern European country of Cyprus. According to the company, its facility in Cyprus “is expected to be the largest and premier integrated destination resort in Europe.”
Helping, the company had its license to operate in Macau renewed. China’s rollback on coronavirus restrictions another strong catalyst. And, analysts are becoming far more bullish. For example, Morgan Stanley identified MLCO stock as its “top pick” among Macau names, as noted by StreetInsider.com. Citing “better valuation and positive catalysts in 2023” as its reasons for being bullish towards the name, the investment bank has a $13.50 price target and an “overweight” view of the shares.
Also upbeat on Melco recently was JPMorgan, which upgraded the shares to “overweight” from “neutral” on Nov. 28. The investment bank expects MLCO to outperform as Macau reopens. Given all of Melco’s casinos and positive catalysts, its current $5.17 billion market capitalization appears to make MLCO stock quite a bargain.