Morgan Stanley (NYSE:MS) has highlighted its top picks in the leisure and hotel sectors for 2024, citing Flutter Entertainment PLC (LSE:FLTR), Accor, Whitbread PLC (LSE:WTB) and Compass Group PLC (LSE:CPG) as top 'overweight' stocks with a positive outlook on their future performance.
In the betting space, Paddy Power-owner Flutter’s US listing “should be positive for investor attention, liquidity and comparability”, according to the bank, with the group’s transformative financial profile and M&A opportunities paving the way for shares to outperform.
Travel firm Accor and Premier Inn-owner Whitbread are likely to be bolstered by “resilient” travel trends and UK hotel demand, while Europe’s largest foodservice group Compass has benefitted from “structural growth” in outsourcing.
In contrast, Morgan Stanley (NYSE:MS) slapped an 'underweight' rating on cruise line company Carnival PLC (LSE:CCL) and lottery business Française des Jeux (FDJ).
Carnival’s pricing and operating metrics “still lag peers” while FDJ is facing lower growth and “opaque regulatory risks”.
Morgan Stanley is bearish on cruise liners in general, stating: “The cruise industry continues to face weak pricing power, given high supply growth, and companies remained exposed to revenue weakness, given their high operational and financial gearing.”
As for pubs and restaurants, the bank is cautiously optimistic.
“We expect the year to start well, with companies reporting strong trading updates for the festive season, helped by the calendar (Christmas on a Monday), mild weather and fewer rail strikes.
“For as long as unemployment remains low, and capacity continues to exit the market, we expect like-for-like sales to remain positive."
However, Morgan Stanley expects like-for-like sales to slow from the second quarter “as inflation subsides and pricing slows, which optically could be seen as a negative for the space, even though it should be positive for margins”.
US gambling stocks could be bolstered by a wave of online gaming regulatory liberalisation, with Entain PLC (LSE:ENT), Evolution and Lottomatica other 'overweight' stock picks alongside Flutter.