This is an 18 page note we write each quarter where we update our thesis/catalysts for the industry and each company into earnings with new charts. We also provide our outlook for 2017 initial guidance, and we’re raising estimates today
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We believe this is the case, and the returns are impressive. We asked each of our top senior analysts for their top three ideas, either long or short, over the next 6 month period and here are the results for the past 3 years.
The Wolfe Research Consumer Team, led by Scott Mushkin, Jared Shojaian and Adrienne Yih, hosts a webinar discussing key takeaways from conference attendees and implications for Holiday Season 2016.
On Tuesday, 12/13/16, we hosted the 3rd Annual Wolfe Consumer Conference in NYC. Participating companies included CHS, PLCE, GPC, KR, RCL, SHW, ULTA, UNFI, URBN, and WYN.
The USD continues to strengthen and it is now at a new cycle high against foreign currencies. In this note we look at FX exposure by each foreign currency for every company we cover. FX exposure by cruise line is as follows: CCL ~50%; RCL ~35%; NCLH ~16%. FX exposure by hotel company is as follows: MAR ~31%; WYN 23%; H ~22%; HLT 19%; CHH 6%; LQ 1%.
This past weekend we asked our team of analysts to think through 3 scenarios for the potential outcome of today’s election:Clinton Victory Trump Victory Inconclusive Result for President when market opens 11/9 (Buy pullbacks aggressively)
Cruise and Hotel 3Q preview. We’re trying out a new format with this 15 page note, which will be a regular quarterly note that we’re referring to as “the travel itinerary.” For each company in our coverage we look at expectations for earnings, changes to our estimates, sentiment we’re hearing from investors, and a new key chart that’s different and topical.
OPEC’s decision to cut oil production could impact cruise lines. Since the oil decline began in mid-2014 cruise stocks and oil have had a -0.73 inverse correlation, partly coincidental, but also due to a perceived benefit for leisure travel and lower fuel costs.
We sorted through the 321 consumers stocks (discretionary and staples) in the S&P 1500. 304 of them have positive earnings, so we’ll stick with those. Of the 304 the average multiple expansion YTD has been 12% (on 2017E P/E). Out of the 304 stocks only two of them have more multiple contraction YTD than RCL (-33%), and only five of them have more multiple contraction YTD than NCLH (-28%). One notable standout on the hotel side was H, who has seen more multiple expansion YTD than 259 of the 304 (+30%).
This year hotel stocks are up 12% while cruise line stocks are down 23%. Last year the exact opposite occurred. Clearly money has been flowing in and out of each sector, and it got us wondering how this has trended historically. We looked at stock performance since 1988 using our proprietary Wolfe Research Hotel C-Corp and Cruise Line indices and found that in those 29 years there were eight years where one group was up while the other group was down. In addition, in those 29 years the average alpha between the two groups was 25pp. One would think that cruise line and hotel stocks should generally trade together. That’s not necessarily the case. See Exhibit 1.
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