Travel + Leisure Co.’s TNL shares have surged 46.6% in the past year compared with the industry and the S&P 500’s growth of 26.1% and 31%, respectively.

On Wednesday, the stock closed at $53.99, only 5.1% below its 52-week high but 42.1% above its 52-week low. Technical indicators imply TNL's continued strong performance. The stock is trading above its 50-day moving average, signaling robust upward momentum and price stability. This technical strength underscores positive market sentiment and confidence in TNL's financial health and prospects.

50-Day Moving Average

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Although this momentum might attract potential buyers, is it the right time to invest in TNL? Let us delve deeper.

Decoding Potential Tailwinds Behind TNL’s Rally

The company is benefiting from robust volume per guest (“VPG”). In third-quarter 2024, VPG has shown impressive performance, reaching the high end of the company’s expectations. VPG was driven by strong engagement from existing owners, which underscores the value they place on their ownership. Notably, VPG levels are nearly 30% higher than in 2019, indicating both the appeal of the product's consistency, flexibility and value, as well as the impact of stricter credit standards implemented in 2020.

Over the past four years, the average FICO score for originations has risen from 725 to 742, while the proportion of portfolio holders with FICO scores below 640 has declined. Sales from new owners exceeded the mid-30% target, enhancing long-term revenue potential.

Several positive trends within the owner base indicate promising long-term growth prospects for the vacation ownership business. The average age of the company’s owners has shifted to the mid-50s, implying increased sales to Gen X, millennials and younger generations. At the same time, a disciplined approach to tour generation has significantly improved the credit quality of the loan portfolio.

Additionally, travel remains central to the experience economy with top destinations like Florida continuing to perform well, alongside growing interest in family-friendly locations such as Washington, D.C., the Pacific Northwest and the Smoky Mountains. Backed by a solid foundation, a diverse geographic footprint and a unique multi-brand strategy, the company is well-positioned to capture a larger share of the vacation travel market by offering a wide range of ownership options tailored to consumer needs.

The company has been also benefiting from the integration of Accor Vacation Club. Four sales sites have reopened and are now fully staffed, with additional sites expected to open by year-end. Accor has generated more than $3 million in adjusted EBITDA so far this year and its growth is anticipated to accelerate next year.

New partnerships like those with Allegiant and Live Nation are expected to bolster tour growth.

TNL’s Earnings Estimates Down Slightly

The Zacks Consensus Estimate for 2024 and 2025 has witnessed downward revisions of 0.3% and 0.2% to $5.75 and $6.40, respectively.

TNL Trades at a Discount

TNL is currently valued at a discount compared with the industry on a forward 12-month P/E basis. TNL’s forward 12-month price-to-earnings ratio is 8.5, significantly lower than the industry. The company is also trading currently at a discount compared with other industry players like Atour Lifestyle Holdings Limited ATAT, Marriott Vacations Worldwide Corporation VAC and Hilton Grand Vacations Inc. HGV.

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What May Pull Back TNL Stock's Momentum?

The company remains concerned about the decline in travel membership revenues. Revenues of the segment declined 3% in third-quarter 2024, indicating continued challenges in transforming the business amid industry consolidation and evolving customer preferences. Long-term inventory costs may rise as new developments are introduced, though the company aims to offset this with strategic planning.

TNL Stock – Buy, Sell or Hold?

Travel + Leisure has demonstrated strong momentum with impressive stock performance and positive operational trends, including robust VPG levels, improving credit quality and growing engagement from younger generations. The company is leveraging a solid foundation, strategic partnerships and a diverse multi-brand strategy to capture a larger share of the vacation market. However, despite its discounted valuation and growth potential, challenges such as declining travel membership revenues and potential long-term inventory costs present risks.

While TNL’s strong fundamentals make it a hold for existing investors, new buyers may consider waiting for greater clarity on the company’s ability to navigate these headwinds effectively. The company currently has a Zacks Rank #3 (Hold).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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Marriott Vacations Worldwide Corporation (VAC) : Free Stock Analysis Report

Hilton Grand Vacations Inc. (HGV) : Free Stock Analysis Report

Travel + Leisure Co. (TNL) : Free Stock Analysis Report

Atour Lifestyle Holdings Limited Sponsored ADR (ATAT) : Free Stock Analysis Report

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