Travel is back, PayPal disappoints, Cannabis gains on Republican bill

Travel is back, PayPal disappoints, Cannabis gains on Republican bill

Equities 7 minutes to read
PG
Peter Garnry

Head of Equity Strategy

Summary:  In today's equity update we look at travel stocks gaining this month on better than expected earnings. PayPal reported a weaker than expected guidance confirming the latest rout in its share price. Lastly, Cannabis stocks were soaring yesterday on Republican bill.


Travel overall is doing better than feared in Q3

Expedia and Airbnb both delivered strong earnings last week with Expedia showing Q3 adj. EPS $3.53 vs est. $1.63 on stronger than expected revenue and Airbnb delivered Q3 adj. EBITDA $1.1bn vs est. $817mn on revenue coming in 10% above estimates at $2.24bn, despite lower gross booking value than estimated, but overall Airbnb’s result in Q3 was much better than feared given rising Covid-19 cases in the developed world. Our travel equity basket is the fifth best performing basket this month up 6.5%. Despite this month’s gains the travel industry is still impacted and the one that will take the longest to fully recover from the pandemic.

Travel basket
NameIndustryMarket Cap (USD mn.)FY22 Sales growth (%)Diff to PT (%)24M Fwd EV/EBITDA5yr return
Boeing Co/TheAirliner manufacturer130,86915.617.615.762.7
Airbus SEAirliner manufacturer106,3405.019.18.8121.7
Airbnb IncBooking platform127,28174.4-3.152.4NA
Booking Holdings IncBooking platform108,40259.23.215.769.8
Marriott International Inc/MDHotel chain54,84226.3-3.816.9140.4
Hilton Worldwide Holdings IncHotel chain42,13434.5-1.818.5222.1
Southwest Airlines CoAirlines30,40769.422.55.722.4
Amadeus IT Group SATravel software33,36930.8-2.815.268.8
Carnival CorpCruise lines27,587-63.415.48.5-44.7
Delta Air Lines IncAirlines28,57767.321.56.15.2
Aena SME SAAirport Services26,12510.93.312.734.1
Expedia Group IncBooking platform28,55265.01.111.358.1
Royal Caribbean Cruises LtdCruise lines23,876-17.4-0.811.126.9
Ryanair Holdings PLCAirlines23,355224.48.68.128.0
Trip.com Group LtdBooking platform19,83812.419.215.6-24.1
Sydney AirportAirport Services16,839-26.19.525.669.4
Huazhu Group LtdHotel chain15,56629.424.218.6329.5
Air China LtdAirlines17,32826.718.16.919.2
Vail Resorts IncSki resorts14,70831.9-3.117.6158.9
China Southern Airlines Co LtdAirlines16,63819.315.37.915.4
Aeroports de ParisAirport Services14,12220.8-9.713.346.5
Shanghai International Airport Co LtdAirport Services15,055-3.51.227.296.6
International Consolidated Airlines Group SAAirlines11,87612.521.85.1-24.2
Host Hotels & Resorts IncHotel REITs13,12468.42.113.435.1
InterContinental Hotels Group PLCHotel chain13,01438.4-3.815.476.2
Norwegian Cruise Line Holdings LtdCruise lines10,450-40.014.79.6-25.6
Accor SAHotel chain10,09835.13.613.75.1
Whitbread PLCHotel chain9,174167.97.712.619.8
Choice Hotels International IncHotel chain8,42839.4-12.920.0220.2
TravelSky Technology LtdTravel software5,26718.136.06.7-13.4
Grupo Aeroportuario del Sureste SAB de CVAirport Services6,24733.86.110.560.1
TUI AGTravel agency5,569-29.8-18.06.5-43.2
Travel + Leisure CoHospitality services5,03440.522.58.7121.5
TripAdvisor IncBooking platform4,81854.219.510.3-24.4
Park Hotels & Resorts IncHotel REITs4,91659.49.411.9NA
Sabre CorpTravel software3,32826.818.614.4-52.9
Flight Centre Travel Group LtdTravel agency3,119176.9-9.69.7-6.6
MakeMyTrip LtdBooking platform3,715151.52.150.537.7
On the Beach Group PLCBooking platform679-38.128.810.740.7
Airtrip CorpTravel agency832-15.12.8NA195.0
Aggregate figures (sum or median)1,041,49830.16.912.636.4
Source: Bloomberg and Saxo Group

Weak guidance sends PayPal shares down

Investors were initially focused on PayPal’s Q3 result showing EPS ahead of estimates and revenue a bit below estimates, but the Venmo partnership with Amazon allowing customers to pay on Amazon with their Venmo app, kickstarted the initial positive sentiment. But then investors realized the big miss on Q4 revenue guidance at $6.85-6.95 vs est. $7.24bn, showing revenue growth is coming down to 14% y/y slightly up from Q3 at 13% y/y, but substantially below the company’s own guided long-term growth rate of 20%. Operating margin was not improving either falling for the second straight quarter. PayPal shares were 5% lower in extended trading extending this year’s drawdown to 31%. Our payment equity basket is the worst performing basket this month.

Source: Saxo Group

Rumours of House Republican bill legalizing cannabis

It is what the cannabis industry has been waiting for, but yesterday rumours suggested that House Republicans are expected to introduce a reform bill removing cannabis from the controlled substances act, which basically means that it will no longer be criminal on a federal level. Essentially the regulation would be more like the current regulation of alcohol. While still a rumour and an initial draft, it was enough to please investors yesterday sending our cannabis equity basket up 7.6% and 10.2% this month.

Besides the good news on the legislative side of the industry, one of the largest companies in the industry Canopy Growth reported very disappointing earnings with Q3 revenue at $131mn down 3% y/y and gross margin plunging to -54.2% from 20% in Q2 driven by an inventory write-down as consumers’ preferences changed during the quarter towards higher end products. This is a major negative for investors and the industry which is still battling with showing profitability.

Source: Bloomberg
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