Investors are watching next week’s earnings reports from hotels, cruise lines and other businesses that have been hard hit by Covid-19 for indications of which companies could be the first to bounce back when the pandemic recedes.

For nearly a year, money managers have largely looked past earnings in the travel and leisure sector, where coronavirus-fuelled lockdowns and travel restrictions battered companies’ businesses and crushed their stock prices. Shares of Marriott and Norwegian Cruise Lines, for example, are down 12% or more in the last year, compared to a nearly 17% gain for the S&P 500 through Friday afternoon.

Next week’s numbers, however, may offer clues on which companies are in the best financial health and would benefit the most from economic reopening, while also allowing investors to better gauge where companies should be valued.

“The results across the board are going to be bad, but it’s really going to be about who is coming back,” said Adam Trivison, a portfolio manager at Gabelli Funds.

The focus on travel and leisure companies comes as investors more broadly gauge the effectiveness of the US vaccination effort and the degree to which it will help the economy get back on track.

The White House announced February 2 that it will start shipping vaccines directly to retail pharmacies alongside regular shipments to states, increasing weekly supplies of shots to 11.5 million.

Will Hilkert, portfolio manager of the Fidelity Select Leisure fund, said that earnings results over the next two quarters will serve as a gut check for investors who had bet on the leisure sector as a play on the economy reopening.

“Over the next six to nine months you’re going to get a chance to make sure that what you think the world is going to look like after the pandemic is being matched by company fundamentals,” he said.

Hilton Worldwide Holdings Inc and Hyatt Hotels Corp are expected to release their results on February 17, followed by Marriott, Norwegian Cruise Lines and TripAdvisor on February 18.

Trivison, of Gabelli Funds, said he will be keeping an eye on hotel bookings in the group meeting business, which he expects to offer clues on the scale of employee travel in the week ahead. Business travellers typically make up 25% of a hotel chain’s customers, though that number may be higher in destinations such as Orlando and Las Vegas.

Most stocks in the hospitality sector are now trading based on estimates of their 2023 results, pushing their current valuations well above their long-term averages, said Robin Farley, an analyst at UBS.

Marriott, for example, trades at a trailing price to earnings multiple of 240.7, while Hilton is currently unprofitable but trades at 515.7 its current fiscal year’s full year earnings, according to Refinitiv data.

Cruise lines, meanwhile, are not expected to become widely profitable again until 2022, when most international travel restrictions should be eased. Norwegian, for instance, trades at 35.2 times its 2022 estimated earnings, while Royal Caribbean trades at 40.4 times its 2022 estimated earnings, according to Refinitiv. Marriott was trading at a trailing P/E of about 16 before widespread economic restrictions were put in place in March.

Published in The Express Tribune, February 14th, 2021.

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