A recent article from Brookings on potential consumer spending post Covid-19 makes an important point: The current decline in consumer spending has not been triggered by over-leverage or a financial crisis. Therefore, with the economic reopening, consumer spending is likely to accelerate significantly.
With more than half of the population in the U.S. already vaccinated, it makes sense to invest in reopening stocks.
While selecting the reopening stocks that will benefit from higher spending, the following point is worth considering — certain sectors have catered to consumer demand through the online channel. However, there are other sectors that are likely to witness demand growth only after economic reopening.
It might be a good idea to focus on these sectors. As an example, e-commerce has ensured that online shopping partially makes up for in-store purchase. However, there is no substitute for travel and tourism. Therefore, this column will focus on reopening stocks that are likely to benefit from people increasingly moving outdoors and elsewhere for leisure and entertainment.
Let’s take a look at these seven attractive reopening stocks.
- JetBlue Airways (NASDAQ:JBLU)
- Penn National Gaming (NASDAQ:PENN)
- Norwegian Cruise Line (NYSE:NCLH)
- Hilton Worldwide (NYSE:HLT)
- TripAdvisor (NASDAQ:TRIP)
- SeaWorld Entertainment (NYSE:SEAS)
- Airbnb (NASDAQ:ABNB)
Reopening Stocks To Buy Now: JetBlue Airways (JBLU)
With Covid-19 fatigue already on a high, there is pent-up demand for travel and tourism. Among the airline stocks, JetBlue seems to be among the best from a fundamental perspective. In a recent past, JBLU stock has been in a tight consolidation range and this seems like a good accumulation opportunity.
Recent bookings data suggests that demand for domestic leisure tickets was 4.4% higher than fiscal year 2019 levels. This underscores my view on the pent-up travel demand. JetBlue has already been ramping-up a network that’s focused on the leisure and VFR (visiting friends and relatives) market.
From a financial perspective, the company reported liquidity of $3.2 billion as of first quarter 2021. With an adjusted debt-to-capitalization ratio of 59%, the balance sheet health is sound. It’s also worth noting that the airline has been scaling-up operations by launching new routes and with flexible schedules.
Recently, the company also announced entry into the transatlantic market, with non-stop service between New York and London. Therefore, with demand gradually increasing, the airline is well positioned to report better numbers in the coming quarters.
If management can tamp down the cash burn in the coming quarters, JBLU stock is likely to surge higher.
Penn National Gaming (PENN)
Penn National Gaming stock was in a steady uptrend and touched a high of $142 in March. However, the stock has seen a significant correction to current levels of $80. PENN stock is still higher by 163% on a 12-month return basis. I believe that the stock is among the attractive reopening stocks to consider.
One of the sectors that’s likely to witness strong growth on reopening is gaming and casinos. People have been restricted to at-home entertainment. Once casino capacity increases, PENN stock is likely to trend higher again.
As of Q1 2021, the company operated 41 properties in 19 states. It’s worth noting that the Penn’s properties in the South reported revenue and EBITDAR that exceeded pre-covid levels. If the trend is similar for the Northeast, West and Midwest, the company is positioned for accelerated EBITDAR in the coming quarters.
Further, Penn is also positioning itself as an omni-channel casino and gaming provider. Last year, the company acquired 36% stake in Barstool Sports for $163 million. Entry into iCasino and retail sports betting is likely to ensure that growth remains stable in the next few years. Overall, the correction is a good opportunity to accumulate PENN stock.
Norwegian Cruise Line (NCLH)
In the last few months, Norwegian Cruise Line stock has been trading in a tight range. With gradual recovery in demand for cruising, shares of stock looks attractive.
In terms of resumption of cruising, there are two important triggers. First, the company will be resuming cruises in July 2021 with an initial focus on Jamaica, the Dominican Republic and Greece.
Further, the company has submitted a letter to the U.S. Centers for Disease Control and Prevention to resume cruising in the United States. As a safety measure, all crew and guests would be vaccinated. An approval is very likely in the coming months and will be a potential stock upside trigger.
NCLH has also reported a strong trend in bookings. Approximately 70% of the bookings for the first half of FY2022 are cash bookings. Further, in Q1 2021, the gross advance ticket sales increased by $200 million. Overall, the company had $1.3 billion in advance ticket sales as of Q1 2021.
On the flip-side, the company reported cash burn of $190 million per month in Q1 2021. As cruising activity improves gradually, cash burn is likely to sustain. However, the company has a robust liquidity buffer of $3.3 billion. This will ensure that the company can navigate the next few quarters of industry headwinds.
Hilton Worldwide (HLT)
Hilton Worldwide is another attractive name among reopening stocks. UBS recently increased its price target for the stock to $136 with improving recovery visibility. That 7.9% upside seems very likely with the gradual opening of key economies globally and accelerated vaccination drive.
It’s worth noting that 73% of the company’s adjusted EBITDA for FY2019 was from U.S. properties Therefore, the inter-state leisure and business travel can potentially trigger growth for the company in the coming quarters.
Another reason to like HLT stock is the fact that the company has a strong pipeline of 399,000 new rooms. Hilton already has 50% of those rooms under construction. In terms of growth, the pipeline will have an incremental impact of $800 million on adjusted EBITDA. The company’s pipeline will also ensure that revenue is more diversified in the coming years, with 35% of new construction in Asia Pacific.
Hilton is significantly leveraged, with net-debt-to-EBITDA of 11.2x, as of Q1 2021. However, with healthy cash flows and an extended debt maturity profile, I don’t see leverage as a concern.
The hotel operator is also well diversified from the perspective of different brands. With upper-upscale, upscale and upper mid-scale brands, Hilton has a big addressable market. In the last six months, HLT stock has gradually trended higher by 13%. A break-out on the upside seems imminent with lower infections and aggressive vaccination being the triggers.
As a global travel guidance company, TripAdvisor seems attractive. TRIP stock has corrected by 20% in the last month after a big rally. The correction seems like a good accumulation opportunity.
For FY2022, the company believes that the global travel market will be worth $1.4 trillion. Further, $700 billion, or 53% of the market opportunity is likely to be transacted online. For a company that has a significant influence on the global travel market, the growth opportunity is immense.
The company has been reporting EBITDA losses in the last few quarters. However, near-term cash burn is not a concern. TripAdvisor has a strong liquidity position of $1.1 billion as of Q1 2021.
With brand repositioning, the company has introduced travel safe features. This will help consumers make informed decision on destinations from a health and safety perspective. The company has also beta-launched a direct-to-consumer offering.
Prior to the pandemic, TripAdvisor had a record of positive operating and free cash flows. With adjustments to the offering and a diversified revenue mix, the company is positioned for a strong comeback. Importantly, with pent-up demand for leisure travel, the recovery for the company is likely to be strong over the next 12 months.
SeaWorld Entertainment (SEAS)
SEAS stock might be looking expensive at a forward price-to-earnings-ratio of 62. However, SeaWorld Entertainment is among the top reopening stocks and worth considering on any intermediate correction.
SeaWorld is a U.S. theme park and entertainment company with a regional focus. As of March 2021, the company had 12 theme parks. With gradual re-opening, 10 of those parks were operational as of Q1 2021.
For Q1 2021, the company reported total guest attendance of 2.2 million. For Q1 2019, the guest attendance was 3.3 million. Clearly, partial reopening has continued to affect the company’s revenue and EBITDA.
However, the company expects all 12 parks to be open in the current operating season. Further, with more Americans being vaccinated, the company seems positioned to deliver better footfalls in the coming quarters.
From a financial perspective, the company delivered positive adjusted EBITDA for Q1 2021 as compared to an EBITDA loss in Q1 2020. In the comparable period, total revenue per capita also increased with a healthy growth in in-park spending per capita.
With these positive trends, SEAS stock looks attractive. However, it makes sense to wait for some correction after a big rally.
Airbnb stock surged from its December initial public offering to reach $220 in mid February. However, ABNB stock has seen a deep correction since late last month, falling from $175 a share to current levels below $135. Here, the company is worth considering as an attractive name among reopening stocks.
Airbnb operates a global platform for stays and experiences. For Q1 2021, the company processed $10.3 billion in gross bookings. On a quarter-on-quarter basis, this was higher by 75%. The gross booking numbers are an early indication of growth in demand for travel and tourism.
It’s also worth noting that for Q1 2019, the company’s adjusted EBITDA loss was $248 million. Losses widened to $334 million in Q1 2020. However, for the most recent quarter, the EBITDA loss narrowed to $59 million. If this trend sustains, positive EBITDA could be a key stock upside trigger.
In terms of consumer confidence on travel, Airbnb reported lead time for March 2021 that was at par with March 2019. Therefore, the trend is likely to be positive in the coming quarters. Airbnb has also witnessed strong growth in active listings for non-urban areas. The company believes that these areas are currently more popular with guests. The company therefore stands to benefit from this trend.
Airbnb also has a robust cash position of $6.6 billion. This gives the company ample flexibility to invest in marketing, growth and technology upgrades.
On the date of publication, Faisal Humayun did not have (either directly or indirectly) any positions in any of the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Faisal Humayun is a senior research analyst with 12 years of industry experience in the field of credit research, equity research and financial modeling. Faisal has authored over 1,500 stock specific articles with focus on the technology, energy and commodities sector.
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