Over the past year, consumers have shifted their spending preferences from goods to services. After a two-year slump due to the pandemic, travel has rebounded strongly and is approaching pre-pandemic levels. This shift has benefited top-rated stocks in the travel industry.
After solid air travel growth in 2022, consumers have continued to splurge on travel experiences. While most of 2022’s travel was domestic, international travel this year is seeing massive demand. As a result, some travel stocks are showing impressive earnings momentum.
While goods retailers are seeing falling sales, the travel sector is having a resurgence. Demand is resilient across various industries, such as online bookings, hotels, and cruise lines, as consumers seek the thrill of experiences. Notably, these companies are forecasting robust growth for 2024.
And, there’s still room for this trend to play out. Consumers haven’t yet scratched their itch for travel and experiences. That’s why analysts remain bullish on these top-rated stocks in the travel industry.
Expedia (EXPE)
Expedia (NASDAQ:EXPE) is a technology platform that allows visitors to book lodgings, hotels, flights, cruises, and other experiences. The company underperformed its peer Booking Holdings (NASDAQ:BKNG) earlier in the year due to execution challenges. However, the latest quarterly report quelled these issues and the stock has rebounded sharply.
In the third quarter, the company delivered solid earnings and soared. It reported record quarterly revenue of $3.93 billion, representing 8.6% year-over-year (YOY) growth. Lodging bookings were robust, growing 8% YOY. Additionally, management announced a new $5 billion share buyback program to top the stellar earnings.
Given the impressive earnings, it’s not hard to see why the stock is one of the top-rated stocks. Wall Street analysts are very bullish on EXPE stock. As of this writing, the stock has 13 buy ratings.
On November 17, Evercore ISI increased Expedia’s rating to outperform and issued a $200 price target. Analyst Mark Mahaney highlighted that the company could see accelerating revenue and was at an inflection point. He expects that travel demand will remain stable, supporting revenue growth.
Additionally, the company is implementing several initiatives to drive EBITDA margin expansion in 2024. While the stock has rallied over 30% since the earnings announcement, it can appreciate further. It is still cheap at 11x forward earnings. And, Evercore’s price target presents an upside of over 40%.
Delta Airlines (DAL)
Airlines had a brutal summer as news about falling airfares filtered through the market. Making matters worse, crude oil prices rallied from $75 per barrel in early July to over $95 by the end of September. As a result, the U.S. Global Jets ETF (NYSEARCA:JETS) plummeted over 30% between July and September.
Despite the carnage, there are top-rated stocks to buy in the sector. Indeed, there are several reasons to be bullish on airline stocks. First, crude oil prices have backed off, relieving airlines. As long as crude oil prices remain at current levels, airlines will avoid fuel cost pressures.
Secondly, international carriers are in excellent fundamental shape. While domestic fares in the U.S. are falling due to competition and increased capacity, demand for international travel is still strong. Delta Airlines (NYSE:DAL) is among the top-rated stocks experiencing solid demand.
On October 12, the company reported a 13% increase in revenues fueled by international flights. Also, management guided for huge demand in the fourth quarter.
“Robust demand for travel on Delta is continuing into the December quarter where we expect total revenue growth of 9 percent to 12 percent compared to the December quarter 2022,” said Glen Hauenstein, Delta’s president.
Revenues from international passengers grew 35%, driven by the record passenger unit revenue. Growth was excellent in all regions, with Transatlantic and Latin America revenue growing 34% and 20%, respectively. Other significant revenue contributors, such as Premium, grew 17% YOY.
Moreover, it is deleveraging its balance sheet and has repaid $3.7 billion of debt year to date (YTD). These solid fundamentals and the solid outlook for international travel leave analysts bullish. With 19 buy ratings and an average price target of $52, DAL stock will soar.
Wyndham Hotels & Resorts (WH)
Recently, Wyndham Hotels & Resorts (NYSE:WH) rejected a lower bid from Choice Hotels (NYSE:CHH). Surprisingly, Choice offered a lower valuation than the initial $7.8 billion takeover bid. Management stated the bid doesn’t reflect the value of the business, which might be a sign the stock could rally further.
Due to its unique operating model, Wyndham Hotels & Resorts is among the top-rated stocks. It’s the largest pure-play hotel franchisor worldwide and operates under 24 global brands. Its portfolio spans over 95 countries and covers every category, from economy to luxury. Currently, it franchises over 9,100 hotels with over 858,000 rooms.
The asset-light franchise model allows the company to maintain some of the best margins. EBITDA margins average over 80%, and it reports a 100% free cash flow conversion. In addition to the profitability, the company has recorded stellar growth, achieving 11 consecutive quarters of net room growth.
Wyndham expects to continue its net room growth through various initiatives. First, it expects to open more than 450 hotels annually. Secondly, it anticipates rapid growth from Echo Suites, its new extended-stay product. Due to these growth levers, management expects 7-8% EBITDA growth in 2024.
Going into 2024, Wyndham is positioned to capture travel dollars from middle-class households. Furthermore, the stock could soar further if Choice boosts its takeover bid. TipRanks analysts are bullish and see a 12% upside from current levels.
On the date of publication, Charles Munyi did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
