For the past year and a half, top hotel, restaurant and leisure stocks have surged on investor interest and very positive sentiment from Wall Street analysts. In a research report out today, the analysts at Oppenheimer say that multiples on some names have become very stretched, and the fact that analysts remain so bullish on the names is another sell signal.
Recent decelerating and declining trends in hotel revenue per available room, casino pricing power and restaurant comparable-store sales and traffic only bolster their conviction that further trimming to analyst forecasts may be in store for hotel, restaurant and leisure stocks. They also point out that valuations rivaling those of recent cyclical peaks leave little room for fundamental miscues, making the industry notably susceptible to a meaningful bout of relative underperformance. Here are the stocks that Oppenheimer would sell now in order to rotate to more favorable sectors.
Carnival Corp. (NYSE: CCL) has had a very tough year, with some of the most negative headline issues that a company can endure. From engine failures to onboard fires, the cruise industry has taken a beating, and Oppenheimer does not like the sector or this stock. The Thomson/First Call estimate for the stock is $38.25, and investors are paid a 2.7% dividend.
Darden Restaurants Inc. (NYSE: DRI) has presented investors with a string of poor earnings reports as its restaurant chains have under-delivered for more than a year. While the company has tried to cut costs to increase margins, it simply is losing to other, more-focused competitors. The consensus price target for the stock is $52. Investors do receive a 4.8% dividend, though it may be in trouble.
International Game Technology (NYSE: IGT) has found some success supplying large casinos and may be more likely to trade sideways instead of down. The company recently offered a $500 million debt deal and is using part of the proceeds to pay down a very large revolving debt deal that matures next year. That helps the near-term debt picture, but it increases the total debt service. The consensus price target is posted at $19.20. Investors receive a 1.9% dividend.
Marriott International Inc. (NYSE: MAR) screens unfavorably as consumers are still trying to pinch pennies, and its higher priced hotel franchises are losing out to companies more willing to discount. The consensus price target of the stock is $46.50. Investors are paid a 1.6% dividend.
McDonald’s Corp. (NYSE: MCD) is a defensive name that every portfolio manager seems to own. The problem is that same-store sales have dropped, and so has the restaurant performance index. The index is published at the end of every month by the National Restaurant Association and reflects the health of and outlook for the U.S. restaurant industry in the previous month. A falling number does not bode well for McDonald’s. The consensus price target for the stock is $105. Investors are paid a 3.3% dividend.
Panera Bread Co. (NYSE: PNRA) has defied gravity for almost two years and the short-selling community is starting to focus on this stock. Despite a very strong and growing franchise concept, the real call on Panera is valuation. It is too expensive to own at these levels. The consensus price target for the stock is $190.
Ruby Tuesday Inc. (NYSE: RT) is losing out to the other companies that court the same customer. While the others have adapted to changing consumer tastes and have managed to expand operations, Ruby Tuesday has stagnated. Now its earnings picture is in trouble. The consensus price target for the stock is posted at $8.
Wynn Resorts Ltd. (NASDAQ: WYNN) also has been a high-flying stock that some of the shorts are beginning to circle. Despite a very strong Macau gaming operation and some success in Las Vegas, the company is another overvalued name and just may be ready for a breather. The consensus for this name is posted at $152.50, which is below current trading levels. The company pays a 2.6% dividend.
Oppenheimer is not posting a bearish short note on these companies. The basic gist of the report is that many of the stocks simply are overpriced and that there is opportunity for investors in other sectors. In fact, the analysts point to energy and materials as sectors on which they are much more constructive. Investors may want to check their portfolios for how they are positioned in those sectors, and trim these names to add there.