Stock Analysis & Ideas

MAR, DAL: Leisure Stocks to Get a Boost from Falling Airfares, Hotel Tariffs

Story Highlights

August’s numbers show a sharp dip in hotel rates and air ticket prices. However, this means surging booking activities, which is a boon for stocks like Marriot and Delta Airlines.

Travel enthusiasts are in for a pleasant surprise. Airfares and hotel tariffs declined lower than expected in August. The trend is likely to sustain through September, which can be a great pick-me-up opportunity for leisure stocks like Marriott International (NASDAQ:MAR) and Delta Airlines (NYSE:DAL).

August Brings Encouraging Numbers

Hospitality data analytics firm STR revealed that the hotel rates declined 4.6% month-over-month in August. Although this is not unusual as schools reopen after the summer break, August declines before the pandemic would typically range between 2% and 3%. The larger-than-usual drop was also the result of a slowing economy.

The back-to-school month also saw a 37% decline in the average round-trip domestic airfares for September and October, according to Hopper, a travel booking app. This was 3% less than the usual pre-pandemic August declines in airfares. For international bookings, ticket prices were down 19% from summer prices this year.

Amid prices rocketing everywhere, the fact that some prices have gone down more than expected is a morale booster.

It is important to note here that the hospitality industry is still recovering from the pandemic blow, and the occupancy rate, despite steadily improving, still has to catch up to pre-pandemic levels. This points at significant upside potential to travel industry growth and the companies operating in this space.

Against this backdrop, let’s look at the aforementioned companies, Marriott International and Delta Airlines, and understand what the Street has to say about them.

Marriot International (MAR)

With more than 8,000 properties across 139 countries, Marriot is one of the largest international hotel chains. Pandemic-led lockdowns in various parts of the world earlier this year could not impact its stock much. Shares of Marriot have lost only about 1% so far this year.

The company anticipates worldwide RevPAR (revenue per available room) to grow between flat to 3% in Q3 2022 from Q3 2019. Moreover, RevPAR in the United States and Canada is projected to grow 1-4% from 2019 levels.

Marriot is targeting a net room growth between 3.5% and 4% in 2022, which may be immediately accretive to the top line if it materializes.

Is Marriot Stock a Buy?

Despite being upbeat about the demand for Marriot’s services and the resilience of leisure travel, BMO Capital analyst Ari Klein, last month, chose to wait for a better entry point with a Hold rating.

Given the strong resilience of the company amid numerous headwinds, Marriot may be a great pick for the long term.

Wall Street is cautious but optimistic about Marriot, which carries a Moderate Buy consensus rating based on three Buys and five Holds. Marriot’s average price prediction indicates an average price target of $167.88, representing 3% upside potential.

Delta Airlines (DAL)

The $21-billion airline company operates from more than 275 destinations across six continents. Travel demand recovery amid the opening of international skies after Covid is providing the wind beneath Delta’s wings.

Management even expects a 1%-5% increase in revenues for Q3 from 2019 levels, which indicates a steady post-pandemic recovery.

Interestingly, in August, gasoline prices also dropped. Given the slowing demand for commodities amid inflation, gasoline prices are expected to remain under pressure, presenting an opportunity for Delta to improve its bottom line while the trend lasts.

Also, Delta Airlines is aiming to achieve more than $50 billion in total adjusted revenues, more than $7 per share of adjusted earnings, and a free cash flow of more than $4 billion by 2024. This articulate business vision and transparency make the stock worthy of consideration.

Is Investing in Delta a Good Idea?

Delta’s price-to-sales ratio of 0.5 makes it a great investment to be made right now before its valuation goes up.

Wall Street is bullish on Delta and has a Strong Buy consensus rating based on 10 Buys and one Hold. DAL’s average price target of $47.15 indicates upside potential of 42.23%.

Concluding Remarks: MAR and DAL Have Too Many Upsides to Ignore

Marriot has a significant upside in the form of an expanding chain of hotels that have defied macroeconomic challenges and a recovering travel scene. Meanwhile, Delta is too cheap to ignore right now, not to mention the shiny short-to-medium term outlook.

Additionally, hotel tariffs and airfares are relatively cheap for now, as schools have reopened after a long summer break. Prices are expected to start rising again in October, indicating that booking activities will pick up significantly in September. Therefore, this could be a good time to gain exposure to these stocks as their prices are still low.

Read full Disclosure

Tired of arriving late to the Big Returns Party?​
Most investors don’t have major gainers like TSLA or NVDA on their radar from the start.
The profusion of opinions on social media and financial blogs makes it impossible to distinguish between real growth potential and pure hype.
​​For the past decade, we have developed and perfected technology designed to help private investors, just like you, find the best opportunities, with the greatest upside potential, in any financial climate.​
Learn More
Videos