It’s a great time to be looking at stocks in the travel and hospitality industries.
The sector was temporarily beaten down due to the COVID-19 pandemic. However, tourism activity has come absolutely roaring back since the global economy reopened and travel restrictions were lifted. In addition, government stimulus and a sharp jump in consumer income have led to a surge in discretionary spending. In turn, much of that extra disposable income has gone to tourism and other experiences.
This has led the travel industry to enjoy record volumes, and in some cases record profits over the past year. The global economy is always a question mark. For now, though, the outlook remains highly favorable for these three travel stocks.
Grupo Aeroportuario del Sureste (ASR)
Grupo Aeroportuario del Sureste (NYSE:ASR), or Southeastern Airport Group in English, is a Mexican private airport operator.
It runs numerous airports in Mexico, including its flagship Cancun property. In addition, it controls six airports in Colombia, including Medellin’s international airport. Sureste also operates the San Juan, Puerto Rico airport.
Mexico has enjoyed a tourism boom thanks to its proximity to the U.S. and Canada along with relatively low prices for hotels and other amenities. Cancun has seen passenger volumes explode over the past decade. Sureste’s other airports in Mexico such as Merida should benefit from both the stronger domestic economy and increasing tourism volumes.
Sureste’s Colombian airports should also show sharply stronger growth in 2024. Last year, two Colombian discount airlines went bankrupt and shut down, causing traffic to fall by double digits year-over-year. As those bad comps roll off, Sureste will report excellent results from its Colombia airports this year.
Shares continue to trade at a relatively low valuation of 13.5 times forward earnings, which is remarkable given that the firm has grown earnings at a double digit compounded rate since the company went public.
As Mexico and the U.S. continue to form stronger cultural and demographic ties, Sureste should continue to enjoy rising tourism flows and increasing profitability. In January, ASR stock scored a rare double upgrade from Goldman Sachs. Goldman raised its outlook on Sureste shares from “sell” to “buy” citing strong growth and an undemanding valuation.
Corporacion America Airports (CAAP)
Turning to South America, Corporacion America Airports (NYSE:CAAP) is one of the world’s largest private airport operators with 52 properties which serve more than 80 million passengers annually. It controls most of the commercial airports in the nation of Argentina, including the various Buenos Aires airports. In addition, CAAP has airports in Brazil, Italy, Armenia, Ecuador, and Uruguay.
The firm’s stock crashed as much as 90% between its 2018 IPO and when it ultimately bottomed during the pandemic. Investors had been concerned about a liquidity squeeze, but the airport operator was able to negotiate aid and contract extensions from various government entities as relief for the pandemic-related losses. The airport operator also slashed costs during that time.
As such, Corporacion America Airports is now several times more profitable today than it was prior to the pandemic. Regardless, shares are still only trading around the firm’s original 2018 IPO price.
That discrepancy has left shares sitting at just 8 times estimated fiscal year 2025 earnings and just seven times enterprise value to EBITDA, which is far lower than comparable publicly-traded airport groups. And that’s with the firm expected to grow earnings at a rapid clip in future years.
Shares are dramatically undervalued and should continue to rally and hit fresh all-time highs. That’s doubly true as investors have grown more optimistic about Argentina thanks to that country’s new and staunchly pro-business government.
Sabre (SABR)
Sabre (NYSE:SABR) operates a global distribution system. These are the platforms that airlines, passenger railroads, cruise operators, hotels, and other travel companies use to distribute tickets and reservations to travel agencies and other customers.
GDS operators serve as a marketplace; the airlines and other providers list all of their available itineraries and then travel agencies, online booking sites, and so on can sort through the GDS inventory and purchase through that platform. The GDS operator collects a fee for the purchase.
For obvious reasons, the GDS operators including Sabre saw their profits collapse during the pandemic. Sabre was caught in a particular bind, since it had invested heavily to modernize its previously outdated IT system.
Unfortunately, the debt related to that expense piled up and the firm hasn’t been able to recoup on that investment quickly enough thanks to the travel stoppage. This explains why Sabre remains at a depressed valuation despite the ensuing travel recovery.
However, the company expects major cost savings in 2024 and 2025 and has a path to positive earnings. Sabre is in a race against the clock to reach profitability and deal with its interest expenses and flimsy balance sheet. But if the firm can successfully roll over its nearer-term obligations, the stock could be a multi-bagger from current levels.
Sabre stock has tremendous torque for higher international travel and tourism volumes making it a great pick for travel stock bulls. SABR stock is the riskiest on this list, but if general economic conditions permit, the stock could have tremendous upside from current levels.
On the date of publication, Ian Bezek held a long position in ASR and CAAP stock. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
