As Hurricane Dorian, now a Category 3 storm, pounds the Bahamas on its way to the U.S., Nomura Instinet analyst Harry Curtis recommends buying Norwegian Cruise Line (NCLH) and Royal Caribbean (RCL) on any related weakness as he sees little long-term impact on the industry. Meanwhile, his peer at Wells Fargo argued that Dorian should further mute growth for the lodging industry, which was already experiencing a relatively weak third quarter to date.
NORWEGIAN, ROYAL SHOULD BE BOUGHT ON ANY WEAKNESS: After speaking with cruise operators, Nomura Instinet's Curtis expects the impact of cancelled cruises beginning this weekend and lasting for several days due to Hurricane Dorian will be in the neighborhood of 5c of earnings per share. While the analyst lowered his estimates accordingly, he recommended buying Norwegian Cruise Line and Royal Caribbean should there be a storm-related pullback in the coming days as Curtis expects little long-term impact on the industry from the storm since island destinations in the greater Caribbean have not been impacted. Despite the hurricane threat and an equally gusty political environment, consumer demand for cruising is stronger than this time last year, he added. Additionally, The Fly notes that Royal Caribbean issued a statement to Bloomberg that it has found no visible damage at the CocoCay private island after Hurricane Dorian.
MUTED GROWTH FOR LODGING INDUSTRY: Noting that the lodging industry was already experiencing a relatively weak third quarter to date, Wells Fargo analyst Dori Kesten argued that the impact of Hurricane Dorian over Labor Day weekend and now this week should further mute growth. Lodging companies with the largest exposure to coastal markets, as well as Orlando whose airport closed and Miami which is still expected to experience tropical storm force winds, include Ryman Hospitality Properties (RHP), Hyatt Hotels (H), Xenia Hotels & Resorts (XHR), Park Hotels & Resorts (PK), and Hersha Hospitality (HT), with over 10% of rooms exposed, he noted. Excluding Orlando, the analyst believes those with the greatest exposure would be Hersha Hospitality, RLJ Lodging Trust, and Apple Hospitality REIT (APLE).
TENET WITH HIGHEST EXPOSURE AMONG HOSPITALS: Also commenting on any potential impact from Hurricane Dorian, Evercore ISI analyst Michael Newshel told investors that he estimates that Tenet (THC) has 22% of its beds in coastal counties in Florida, Georgia, South Carolina and North Carolina, where mandatory evacuations have been ordered in certain coastal areas due to the expected path of the storm. HCA Healthcare (HCA) has 15% of its beds in coastal counties in Florida, George and South Carolina, including 8% in counties that have received evacuation orders, while Universal Health (UHS) has one acute hospital, representing 3.6% of its total acute beds, in the affected coastal counties, and 8% of its behavioral beds are in coastal counties, the analyst noted. Newshel also pointed out that Community Health (CYH), Quorum Health (QHC) and Acadia (ACHC) do not have any coastal exposure in the four states expected to be most impacted by Dorian.
QUEST, LABCORP COULD BE IMPACTED: Meanwhile, KeyBanc analyst Donald Hooker noted that both Quest Diagnostics (DGX) and LabCorp (LH) operate facilities in Florida and the Southeast that could be negatively impacted by Hurricane Dorian. In prior years, bad hurricane seasons have negatively impacted year over year patient volumes by anywhere from 30-160 bps for both companies, with a more pronounced bottom-line impact given the economies of scale in lab testing, he added. However, the analyst suspects that the financial impact may be mitigated this year given the significant changes at both Quest and LabCorp. As an initial take, Hooker would ballpark a bad hurricane season for Quest could represent about $20M of revenue headwind and 6c of earnings per share headwind, while for LabCorp, the headwind could be about $17M and 6c, respectively.
'DE MINIMIS' IMPACT ON LIBERTY LATIN AMERICA: In a research note of his own, Benchmark analyst Matthew Harrigan highlighted that the Bahamas represent only about 5% of Liberty Latin America's (LILA) overall revenue, adding that the effective economic exposure is reduced to about 2.5% for the entire Bahamian island chain as BTC Bahamas is only 49% owned by the company's Cable & Wireless subsidiary. While also noting that over 65% of Bahamian sales are from mobile, Harrigan told investors that he expects "de minimis" financial impact from Hurricane Dorian on Liberty Latin America. He reiterated a Buy rating on the shares.
LOWE'S APPEARS TO HAVE MOST POTENTIAL EXPOSURE: While the comp boost from hurricane-related sales has varied in magnitude, Home Depot (HD) and Lowe's (LOW) often see a 50 basis points plus impact during the quarter when the storms hit, Baird analyst Peter Benedict told investors. In addition, depending upon the severity of the storm, the analyst noted that Home Depot and Lowe's tend to enjoy a sustained comp tailwind from rebuilding/recovery efforts, while Tractor Supply (TSCO) also tends to benefit as well, although the comp lift tends be slightly less and duration typically limited to one or two quarters.
While Home Depot has the most exposure to Florida and Georgia, the projected path of Hurricane Dorian up the Southeastern coast puts more Lowe's stores in play given its heavy presence in the Carolinas, Benedict contended, adding that in aggregate, Lowe's has the largest mix of stores across Florida/Georgia/South Carolina/North Carolina/Virginia.
OTHERS TO WATCH: Companies whose shares are also usually impacted by major storms in the Southeast include Generac (GNRC), National Oilwell (NOV), and Marine Products (MPX).
Norwegian Cruise Line
-0.92 (-1.81%)
Royal Caribbean
-2.26 (-2.17%)
Ryman Hospitality
-0.49 (-0.61%)
Hyatt
-0.73 (-1.01%)
Xenia Hotels
-0.125 (-0.62%)
Park Hotels & Resorts
-0.15 (-0.64%)
Hersha Hospitality
-0.08 (-0.58%)
Apple Hospitality REIT
-0.24 (-1.50%)
HCA Healthcare
-0.2 (-0.17%)
Tenet Healthcare
-0.6 (-2.77%)
Universal Health
+0.06 (+0.04%)
Community Health
-0.12 (-4.84%)
Quorum Health
+0.0642 (+6.45%)
Acadia Healthcare
-0.19 (-0.72%)
Quest Diagnostics
-0.54 (-0.53%)
Labcorp
-1.01 (-0.60%)
Liberty Latin America
-0.2 (-1.22%)
Home Depot
-2.16 (-0.95%)
Lowe's
-0.48 (-0.43%)
Tractor Supply
-1.02 (-1.00%)
Generac
-3.955 (-5.07%)
NOV Inc.
-0.52 (-2.55%)
Marine Products
-0.07 (-0.46%)