In this article, I have evaluated two travel stocks, Airbnb, Inc. (ABNB) and Travel + Leisure Co. (TNL), to determine which has better upside potential. Based on the fundamental comparison of these stocks, I find TNL a better pick for the reasons explained throughout this article.
The travel industry is showing signs of recovery, according to the latest U.S. Travel Forecast, with domestic leisure travel gradually returning to pre-pandemic levels in 2023 and expected to fully normalize in 2024 and beyond.
In addition, according to Deloitte’s recent summer travel survey, more than half of Americans (50%) are planning a leisure vacation involving paid lodging, an increase from the previous year. Notably, travelers are embracing international flights and adding more trips to their itineraries, showing enthusiasm for travel.
Moreover, the global travel & tourism market is projected to report a revenue of $854.80 billion this year and show a CAGR of 4.4% until 2027. Moreover, online sales will likely contribute to 74% of total revenue in the travel & tourism market by 2027.
Regarding price performance, TNL has gained 9% over the past month, while ABNB has gained 16.4%. Moreover, in the past three months, TNL has gained 4.3%, while ABNB has gained 5.6%.
Here are the reasons I think TNL could perform better in the near term:
Latest Developments
On May 8, 2023, ABNB approved a new share repurchase program with authorization to purchase up to $2.5 billion of its Class A common stock at management’s discretion.
Alternatively, on April 25, TNL and Caravan Wellness announced their partnership to provide exclusively curated health and wellness video content for TNL’s club members. This initiative is expected to attract more members, boost subscription revenues, and enhance customer satisfaction for busy travelers, ultimately driving the company’s financial success.
Recent Financial Results
ABNB’s total revenue for the first quarter ended March 31, 2023, increased 20.5% year-over-year to $1.86 billion. However, its total operating expenses rose 20.4% year-over-year to $1.51 billion. The company reported a loss from operations of $5 million. Its net income and EPS came in at $117 million and $0.18.
Conversely, TNL’s net revenues for the fiscal first quarter that ended March 31, 2023, increased 8.7% year-over-year to $879 million. Its adjusted EBITDA grew 8.2% from the year-ago value to $184 million. In addition, the company’s adjusted net income and adjusted EPS rose 16.6% and 29% year-over-year to $70 million and $0.89, respectively.
Dividends
TNL’s forward annual dividend of $1.80 translates to a dividend yield of 4.54% on the current price level. The company’s four-year average dividend yield is 3.82%. It has paid dividends for 15 consecutive years. Over the five three years, TNL’s dividend payouts have grown at 6.7% CAGR.
However, ABNB does not pay any dividends.
Past and Expected Financial Performance
ABNB’s revenue grew at a CAGR of 20.5% over the past three years. The company’s EPS is expected to rise 37.3% in the current fiscal quarter, 10.1% in the next fiscal quarter, and 23.6% in the current year. Its revenue is expected to grow by 14.6% in the current quarter, 11.2% in the next quarter, and 13.4% in the current year.
On the other hand, TNL’s EPS grew at a CAGR of 11.6% over the past three years. The company’s EPS is expected to increase by 9.5% in the current quarter, 29.7% in the next, and 21.9% in the current year. Its revenue is expected to rise 3.5% in the current quarter, 8.3% in the next quarter, and 6.5% in the current year.
Profitability
TNL’s EBITDA margin of 22.24% is higher than ABNB’s 22.15%. ABNB’s asset turnover ratio of 0.47x is lower than TNL’s 0.56x. Moreover, TNL’s CAPEX/Sales of 1.48% is higher than ABNB’s 0.29%.
Valuation
In terms of forward P/S, ABNB is currently trading at 8.47x, which is higher than TNL’s 0.80x. TNL’s forward non-GAAP P/E multiple of 7.19 is lower than ABNB’s 34.80. Also, ABNB’s forward EV/S multiple of 8.47 is more elevated than TNL’s 2.22.
So, TNL is relatively affordable here.
POWR Ratings
ABNB has an overall rating of C, which equates to a Neutral in our proprietary POWR Ratings system. On the other hand, TNL has an overall rating of B, which translates to a Buy. The POWR Ratings are calculated considering 118 distinct factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. TNL has a grade of B for Value. Its forward non-GAAP P/E and PEG multiples of 7.10 and 0.34 are 49.5% and 74.9% lower than the respective industry averages of 14.24 and 1.35.
On the other hand, ABNB has a grade of D for Value. Its forward non-GAAP P/E and PEG multiples of 34.80 and 2.42 are 144.4% and 78.4% higher than the industry average of 14.24 and 1.35, respectively.
Among the 22 stocks in the A-rated Travel - Hotels/Resorts industry, ABNB is ranked #16. In comparison, TNL is ranked #6.
Beyond what is stated above, we have also rated the stocks for Growth, Momentum, Stability, Quality, and Sentiment. Click here to view all the ABNB ratings. Also, access all the TNL ratings here.
The Winner
Despite the macro uncertainties, Americans are making room in their budgets for travel experiences. As a result, the travel industry is set to experience a strong recovery this year.
While both ABNB and TNL are expected to benefit, choosing TNL is advisable due to its stable dividend-paying history and discounted valuation multiples.
Our research shows that the odds of success increase when one invests in stocks with an Overall Rating of Strong Buy or Buy. View all the other top-rated stocks in the Travel- Hotels/Resorts industry here.
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TNL shares were unchanged in premarket trading Friday. Year-to-date, TNL has gained 11.40%, versus a 15.00% rise in the benchmark S&P 500 index during the same period.
About the Author: Kritika Sarmah
Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities.
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