The nation’s second-largest domestic lodging real estate investment trust (REIT) Park Hotels and Resorts (NYSE: PK)
shares have been severely depressed. The stock collapsed with the benchmark S&P 500 index (NYSEARCA: SPY)
but has failed to rally back to pre-pandemic levels. The REIT owns 60 high-end domestic hotel properties
placing it in the COVID-19 epicenter industry stock group. These stocks are in the worst affected industries including travel, leisure, lodging, live entertainment, and mall-based apparel stores. However, as the restart and recovery efforts continue to improve, the epicenter stocks should start to recover. Moreover, the approval of a COVID-19 vaccine can shift the narrative and bolster sentiment making these laggard stocks look like a bargain. Risk-tolerant investors seeking a bargain value play on the recovery of the lodging sector should seriously consider stalking opportunistic pullbacks on Park Hotels shares.
Q2 2020 Earnings Release
On August 5, 2020, Park Hotels released its second-quarter fiscal 2020 results for the quarter ending June 2020. The Company reported a loss of (-$0.75) per share versus consensus analyst estimates of a loss of (-$0.71) per share, missing estimates by (-$0.04) per share. Revenues fell 94% year-over-year (YoY) to $42 million versus $61.97 million lowered consensus estimates. The Company has begun the slow phased opening for 20 more hotels for a total of 42 and 53% of total room count. By the end of 2020, Park Hotels estimates all but one hotel property will be re-opened and operating.
The Company reacted quickly to the COVID-19 pandemic by suspending operations for 38 out of 60 properties in March and April to “dramatically” cut cap spend by 75% while drawing down on the $1 billion revolver. The Company also increased liquidity to $1.6 billion including a $650 million bond issuance to improve by $300 million from Q1 2020. This liquidity provides Park Hotels with “two-years of runway under the most severe circumstances”. The Company decides to open not only based on regional mandates but also does a cost-benefit analysis to determine if its worth opening versus staying closed. Park Hotels have re-opened 42 of their 60 hotels and plan on bringing that count to 53 by Sept. 30, 2020 and all but one hotel by the end of the year.
The Vaccine Catalyst Narrative
Park Hotels owns high-end hotel and resort properties under the Hilton (NYSE: HLT) , Hyatt (NYSE: H) , Marriott, Waldorf and W Hotels (NYSE: MAR) . The CEO Thomas Baltimore directly stated that despite the gradual opening of hotels commencing in June 2020, they don’t expect a “meaningful increase in demand until medical solutions, including vaccines and therapeutics are in place.” In a nutshell, the Company has enough liquidity to survive for two-years until a COVID-19 vaccine is approved. Meanwhile, and FDA approved vaccine is expected in must less time as many firms are already in phase III trials. Another indication on share valuation can be tracked to the price action of the underlying components tracking MAR and HLT shares. Risk tolerant investors may want to make this bet by stepping into shares while they are compressed.
PK Price Trajectories
Using the rifle charts on the monthly and weekly time frames provides a broader view of the landscape for PK stock. The monthly rifle chart has a make or break with a moving average inverse pup versus a stochastic mini pup. The 5-period moving average (MA) resistance sits at $9.28. The monthly rifle chart also triggers a market structure low (MSL) buy trigger above $11.08 as the stochastic attempts to mini pup back up through the 20-band. A make or break will result in either a moving average breakdown if the stochastic crossed back down rejecting off the 20-band. A channel tightening triggers if the stochastic crosses up through the 20-band. The weekly rifle chart provides more clarity as both the moving averages and stochastic are falling. However, the weekly MSL triggers above the $8.95 Fibonacci (fib) level. This would cause shares to test that monthly 5-period MA and weekly 15-period MA range $9.28 to $9.58 level. A breakout through that range can trigger further upside towards the $11.08 monthly MSL trigger level where it may peak first. If shares trigger the monthly MSL, then the next move is towards the $$12.02 fib, $14.19 and $16.98 fib. While the weekly stochastic is still down, investors should take advantage of opportunistic pullback entry levels at the $8.35 to 8.00 fib range and the $7.50-$7.05 fib range. Keep an eye on how underlying component brands MAR and HLT shares trade for a heads up on PK laggard price action.
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The Next 5 Retailers on the Edge of Bankruptcy
Through no fault of theirs, the novel coronavirus has put some retailers on the edge of bankruptcy. And as you’ve seen, many have fallen over that edge including iconic names like Nieman Marcus, J.C. Penney and J.Crew.
In fact, according to the American Bankruptcy Institute, there were 560 commercial Chapter 11 filings in April. That was a 26% increase over last year. And executive director, Amy Quakenboss, suggests that there are more to come.
“As financial challenges continue to escalate amid this crisis,” observes Quakenboss, “bankruptcy is sure to offer a financial safe harbor from the economic storm.”
With no revenue walking through the door, many retailers are seeing a semblance of revenue from e-commerce sales. But for some retailers, the shutdown is more impactful because they didn’t have a strong e-commerce structure. That means that they rely more than others on brick-and-mortar sales.
The real question now is will there really be the pent-up demand that some analysts still swear is just waiting to be unleashed. It may indeed exist. Time will tell. But time is not a commodity many of these retailers have. And we’ve identified five retailers for which the clock is not in their favor.
View the "The Next 5 Retailers on the Edge of Bankruptcy".