As everyone knows, the travel and leisure industry is in the dumps right now as a result of the COVID-19 pandemic. Yet better therapeutics are coming to market every day, and with each passing day, we are getting closer to a vaccine. Bill Gates believes there could be vaccine approvals as early as December or January, meaning the pandemic could end by mid- to late 2021.
There is likely a lot of pent-up demand for travel after a year of restricted movement. Given the run-up in “stay-at-home” stocks this year, investors may wish to look at high-quality travel and leisure stocks that are still down on the year.
That’s why MGM Resorts International (NYSE:MGM), Disney (NYSE:DIS), and Expedia (NASDAQ:EXPE) all look like promising “post-vaccine” bounce-back travel picks today.
MGM Resorts International
Barry Diller’s IAC/InterActiveCorp (NASDAQ:IAC) recently took a 12% stake in MGM Resorts, and it wouldn’t be a bad idea to follow this smart investor into the stock as well. Not only should IAC help grow MGM’s digital offerings in i-gaming and online sports betting, but MGM’s core casino properties appear quite cheap as well.
MGM’s casinos consist of 35% of rooms on the Las Vegas strip, along with many regional casinos and two properties in Macau. In 2019, MGM achieved adjusted EBITDAR of over $3.3 billion and free cash flow of about $1.1 billion, versus a market capitalization of just $10.5 billion, and an enterprise value of $25.7 billion. That’s just a 7.7 EV/EBITDA multiple and a 10 times cash flow multiple based on last year’s earnings.
New CEO Bill Hornbuckle just took the top role as CEO and appears to be doing a good job conserving cash in the new depressed environment. Of the properties that were gradually reopened in the second quarter, almost all generated positive cash flow, even with 30% occupancy during the week and 50% occupancy on the weekends. The company is also implementing a $450 million cost-saving plan this year, which should stick around even when traffic returns.
Not only should the core properties bounce back strongly once the world gets a vaccine, but MGM should also benefit from the expansion of i-gaming and online sports betting across America. MGM’s BetMGM app should benefit from MGM’s casino presence across the country, as well as its 34 million-plus M-Life rewards members it can reach via digital channels. BetMGM is already live in seven states, on its way to 11 by the end of the year, with market access in 19 total states.
With a cheap stock just in relation to its core casino business, as well as hidden potential upside from BetMGM and IAC’s involvement, MGM looks like a promising turnaround pick in the travel sector today.
Most investors know the Walt Disney brand and its impeccable record of value creation over time. Yet Disney’s stock is still off almost 20% below its all-time highs set back