Travel-related stocks are on fire with the sector's biggest names recording solid gains on the back of pleasing earnings results.
It isn't only the resources sector that is well placed to outperform in 2018 and you only need to look at the results of Flight Centre Travel Group Ltd (ASX: FLT), Webjet Limited (ASX: WEB) and Corporate Travel Management Ltd (ASX: CTD) to see what I mean.
But it is Corporate Travel that is fast becoming a favourite among brokers with UBS the latest to upgrade the stock to "buy" from "neutral" following Tuesday's profit announcement.
"It is hard to ignore the strong organic momentum within the ANZ and European businesses and the recent US tax changes should have a positive effect on US corporate activity," said the broker.
"The rollout of CTD's technology stack across North America and Asia over the next 18 months adds another level of potential organic growth, through both further market share gains and automation efficiencies (as experienced in ANZ and Europe)."
UBS also believes the company could deliver earnings growth ahead of market expectations through acquisitions given its track record.
What's more, the favourable tax changes in the US could throw up some interesting takeover opportunities and boost the company's net profit before amortisation of acquired intangibles by 5% in FY19.
UBS isn't the only one with a bullish outlook for Corporate Travel. Morgan Stanley thinks management's upgraded FY18 earnings before interest, tax, depreciation and amortisation (EBITDA) guidance of $125 million is too conservative as it implies that the second half result will be weaker than what the company has delivered historically.
"The lifted guidance implies 23% organic growth in 2H, an acceleration on the 17% organic growth recorded in 1H," said Morgan Stanley.
"We see the lifted FY18 guidance as conservative, as it implies a 43% 1H skew, which compares to 40-42% seen in prior years."
There are a few reasons to think that the current half will be better than the first half. Floods and fire in the US in the first six months of the financial year have cut group interim EBITDA by US$2 million and uncertainty about whether President Donald Trump can pass his tax cuts forced many clients to the sideline.
But these headwinds have faded and client activity has bounced back in January. Also, airfare competition in China that crimped revenue from ticket sales in the first half is also abating.
This has prompted Morgan Stanley to reiterate its "overweight" recommendation on the stock with a price target of $27 a share.
Of the seven brokers polled on Reuters, five have a buy rating on the stock with the others rating it a hold.
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