With an increase in travel enthusiasm among various age groups, the travel industry is flying high. Therefore, it might be wise to buy quality travel stocks International Consolidated Airlines (ICAGY), Cathay Pacific Airways (CPCAY), and Atour Lifestyle Holdings (ATAT). Keep reading….
The travel industry is set to experience significant growth this year, driven by a resurgence in travel enthusiasm across diverse demographics and positive passenger sentiment. The sector expects significant expansion by capitalizing on strong demand for both leisure and business travel.
Therefore, it might be wise to add fundamentally strong travel stocks, International Consolidated Airlines Group SA (ICAGIA), Cathay Pacific Airways Limited (CPAY) and Atour Lifestyle Holdings Limited (BOTH) to your wallet.
Before we dive into the fundamentals of these stocks, let’s discuss what’s happening in the travel industry.
The travel industry has bounced back strongly from pandemic restrictions, driven by a pent-up desire to travel. In 2024, more Americans are planning vacation trips, with 48% do so and increase budgets, especially among younger generations.
Investors are also showing interest in the sector, as highlighted by the US Global Jets ETF (JETS) Returns of 13.4% over the past month.
Hotel demand in 2024 is rising along with rising travel demand due to factors such as economic recovery and pent-up travel desires. Global travel and tourism revenue is expected to reach $856.10 billion by 2023, growing at a rate of 4.4% from 2023 to 2028. The hotel market, the largest part of travel and tourism, will attract 1.40 billion users by 2028.
IATA expects improved profits for airlines in 2023 and stability in 2024. Total revenues are expected to increase 7.6% year-on-yearreaching a record $964 billion in 2024. Additionally, an all-time high of 4.7 billion travelers is expected in 2024, surpassing the pre-pandemic level of 4.5 billion in 2019.
Furthermore, the global airline industry is expected to grow in the coming years due to rising disposable income, growing middle class and increased demand for travel. The market is expected to grow to CAGR of 25.5% until 2027.
Considering these favorable trends, let’s analyze the fundamentals of the three travel stocks.
International Consolidated Airlines Group SA (ICAGIA)
Headquartered in Harmondsworth, United Kingdom, ICAGY, with its subsidiaries, provides passenger and freight transport services in the United Kingdom, Spain, Ireland, the United States and the rest of the world.
ICAGY’s trailing 12-month return on common equity of 103.94% is 738.3% higher than the industry average of 12.40%. Likewise, its trailing 12-month Capex/Sales of 11.85% is 300.5% higher than the industry average of 2.96%. Furthermore, it is 14.69% over the past 12 months Leveraged FCF the margin is 152.2% higher than the industry average of 5.82%.
For the third quarter ended September 30, 2023, ICAGY’s total revenues increased 18% year-over-year to €8.65 billion ($9.41 billion). Its operating profit increased 43.3% from the prior-year quarter to 1.75 billion euros ($1.90 billion). Additionally, the company’s profit after tax for the period amounted to 1.23 billion euros ($1.34 billion), up 44.2% year-on-year.
For the quarter ended December 31, 2023, ICAGY’s EPS and revenue are expected to increase 143% and 14.2% year-over-year to $0.11 billion and $7.69 billion, respectively. It has surpassed consensus EPS estimates in each of the trailing four quarters. Over the past three months, the stock gained 15.6% to close the latest trading session at $3.85.
by ICAGY POWR Ratings reflect a positive outlook. It has an overall rating of B, which translates to Buy in our proprietary rating system. POWR Ratings evaluate stocks based on 118 different factors, each with their own weight.
It ranks sixth out of 28 stocks Airline companies industry. It gets a B grade for Value and Sentiment. Click here to access ICAGY ratings for growth, momentum, stability and quality.
Cathay Pacific Airways Limited (CPAY)
Headquartered in Lantau Island, Hong Kong, CPCAY and its subsidiaries operate as carriers of international passengers and air cargo. The company carries out air operations mainly to and from Hong Kong. Additionally, it offers real estate investments, travel rewards, financial services, aircraft leasing, airline catering and ground handling.
In terms of leveraged FCF margin over the trailing 12 months, CPCAY’s 38.59% is 562.5% higher than the industry average of 5.82%. Likewise, its trailing 12-month Capex/Sales of 5.71% is 93.05% higher than the industry average of 2.96%. Furthermore, the stock’s trailing 12-month gross profit margin is 39.82% and is 31.1% higher than the industry average of 30.38%.
CPCAY’s total revenue for the six months ended June 30, 2023 increased 135% year-on-year to HK$43.59 billion ($5.57 billion). Its operating profit stood at HK$8.77 billion ($1.12 billion), compared to an operating loss of HK$1.25 billion ($160 million) in the year-earlier quarter.
In the same period, CPCAY’s profit attributable to shareholders and earnings per ordinary share were HK$4.27 billion ($546.03 million) and HK$55.2, compared to a loss of HK$5 billion (US$639.38 million) and loss per share of HK$82.3, respectively.
For the fiscal year ending December 31, 2023, CPCAY revenue is expected to increase 84.3% year-over-year to $11.98 billion. Over the past three months, the stock gained 3.4% to close the latest trading session at $5.00.
CPCAY’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which translates to Buy in our proprietary rating system.
It has an A grade for growth and a B for stability and quality. In the airline industry, it ranks third. In total, we rate CPCAY on eight different levels. In addition to the above, we have also assigned CPCAY grades for Value, Momentum and Sentiment. Get all CPCAY ratings Here.
Atour Lifestyle Holdings Limited (BOTH)
Headquartered in Shanghai, China, ATAT provides lifestyle brands related to hotel offerings in the People’s Republic of China. The company operates a series of themed hotels, including musical hotels, basketball hotels and literary hotels that cater to various lifestyles and interests across different age groups.
In terms of trailing 12-month EBIT margin, ATAT’s 16.68% is 117.4% higher than the industry average of 7.67%. Its trailing 12-month net income margin of 11.48% is 145% higher than the industry average of 4.69%. Furthermore, its trailing 12-month gross profit margin of 50.79% is 44.5% lower than the industry average of 35.15%.
For the fiscal third quarter, ending September 30, 2023, ATAT’s net revenue increased 93.1% year-over-year to RMB1.29 billion ($181.83 million). Its operating income increased 129.9% from a year ago to RMB341.34 million ($48.11 million).
For the same quarter, the company’s net profit and net income per common share were RMB262.07 million ($36.94 million) and $0.63, up 135.8 respectively. % and 110% compared to the previous year’s quarter.
Street expects ATAT’s EPS and revenue for the quarter ended December 31, 2023 to increase 134.3% and 87.7% year over year, to $0.21 million and $171.09 million, respectively. Over the past month, the stock gained 4.9% to close the latest trading session at $17.98.
ATAT’s POWR ratings reflect its strong outlook. It has an overall rating of B, which translates to Buy in our proprietary rating system.
It is ranked #2 out of 19 stocks in the Travel – Hotel/Resort industry. It has an A for growth and a B for quality and sentiment. Click here to see ATAT’s other ratings for Value, Momentum and Stability.
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ICAGY shares traded at $3.86 per share on Friday afternoon, down $0.03 (-0.77%). Year to date, ICAGY has fallen -0.52%, compared to a 2.52% rise in the benchmark S&P 500 index over the same period.
About the Author: Abhishek Bhuyan
Abhishek embarked on his career path as a financial journalist due to his keen interest in discerning the fundamental factors that influence the future performance of financial instruments.
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