Hospitality has easily been among the worst affected industries as a result of the Covid-19 pandemic. When the coronavirus was at its peak in early 2020, U.S. hotel occupancy crashed from about 60% in February to around 22% in April as per data by analytics provider STR.
While occupancy rates have been gradually improving over the past weeks with increasing travel activity, there is a rising need to make consumers feel safe. Cleanliness and hygiene are the two keywords that the entire industry is focusing on. With the gradual increase in the flow of guests, the consumption of sanitation products by large hotel chains like Marriott (MAR, Financial), InterContinental (IHG, Financial), Hyatt (H, Financial), and Hilton (HLT, Financial) is growing significantly.
This presents an interesting opportunity for potential investors to buy sanitation product companies and capitalize on this opportunity. There are some very compelling investment opportunities within this space that I think are worth exploring.
Kimberly-Clark Corporation
Kimberly-Clark (KMB, Financial), a manufacturer of personal care and tissue products, has had a good run over the past six months but has the potential for better performance, in my opinion.
The company's line of Kimberley Clark Professional products provides a wide variety of options to the hotel industry such as dispensers, sanitizers, personal protective equipment (PPE), tissues, napkins and many more. This part of the business is expected to contribute well to the top-line of the company in the coming months.
Interestingly, for a company that is so strongly positioned within the sanitation industry, Kimberly Clark is not too highly valued. The stock is trading at a price-earnings ratio of 19.61 and an enterprise-value-to-revenue ratio of 3, which definitely has scope for expansion given the growth potential. It is worth highlighting that the company has a portfolio of highly valuable consumer brands like Kleenex, Scott, WypAll, Kimtech and KleenGuard over and above its professional business which are expected to continue their growth trend.
The stock also has a five-year yield-on-cost of 3.59%, which is above the consumer-packaged goods industry average so it is also an interesting dividend yield play.
The Clorox Company
Clorox (CLX, Financial) is a California-based personal care player has a wide variety of offerings in terms of cleaning supplies, laundry care and water filtration. It has a wide distribution across the U.S. which accounts for nearly 85% of its top-line.
The company's CloroxPro offerings catering to businesses include a number of disinfecting solutions for the hospitality industry such as bleaches and disinfectants that claim to destroy SARS-CoV-2 from surfaces. The company has its own Clorox Total 360 System for effective sanitization which is relevant for the hospitality sector. It also has a wide variety of consumer brands such as Liquid-Plumr, Pine-Sol, SOS, Tilex, Kingsford, Fresh Step and Glad.
Clorox is not as reasonably valued as Kimberley Clark as it trades at a price-earnings of 28.37 and a price-sales ratio of 3.96, which are on the higher side. However, its growth potential certainly earns it a place on my watch list.
Ecolab Inc.
Ecolab (ECL, Financial) is one of the oldest sanitation companies in the world and is specialized in providing cleaning and sanitation solutions to a wide variety of industries. Its core specialization lies in the restaurant and hotel businesses.
Some of the key services provided to the hospitality industry include the on-premise implementation of best practices with respect to laundry and dishwashing and infection-free housekeeping implementation. Its products not only provide water treatment but also pest control and infection control solutions. This is a key reason why the company's stock has appreciated as much as 58% over the past few months.
It is currently trading at a forward price-earnings of 37.85 based on earnings estimates and a price-sales ratio of 4.17, which limits the scope for multiple expansion, but I think the growing top-line is bound to keep fuelling the growth of this stock.
Its five-year yield-on-cost of 1.5% may also spike the interest of dividend yield players.
Applied UV
Applied UV (AUVI, Financial) is a recently listed microcap player that owns an infection prevention technology involving the use of narrow-range ultraviolet light for the destruction of pathogens. The company implements this technology by applying it to various furnishing devices such as mirrors, sinks and drains and supplies it to the hospitality and healthcare industries.
The company already supplies its mirrors to some of the largest hotel chains like Marriott, Hilton and Four Seasons. Its disinfection technology products are easy to install, automated and effective in destroying a wide array of pathogens, which is why Applied UV is experiencing rising demand.
In a recent press release, the management announced that the company's subsidiary, SteriLumen, Inc., received a large purchase order for the installation of the Airocide Air Quality-Improvement System, a line of patented, air purification technologies for in several public space venues in the UAE. This order was jointly received by SteriLumen along with its UAE-based distribution partner and the systems are meant to be installed at the Dubai Creek Golf & Yacht Club Resort, including a residential community and a luxury Park Hyatt Hotel.
It is worth highlighting that Sterilumen is the exclusive distributor of the Airocide System line of air purification technologies for use in the hotel and hospitality industry in the U.S. and the Greater Middle East. The update includes the fact that the Applied UV management is in talks for the installation of its own patented disinfecting devices such as its drains, its retrofit kit and its disinfecting shelf solutions in the public bathrooms of the resort too. This is a very promising update and shows that the company has excellent growth potential over the coming months.
Final thoughts
It is visible in the above chart that each of these sanitation solution vendors to the hospitality market has witnessed more than 20% growth over the past six months (Applied UV is not in the above chart as it was listed at the beginning of this month, but it is also trading at a premium above its $5 offer price). I expect these companies to witness a rise in orders from the hospitality industry over the coming months as the number of travelers increases. The positive impact of the same should be visible in their future results.
Disclosure: No positions.
Read more here:
- Applied UV: Entry Into the Hospital Space
- NanoViricides to Use Gilead Sciences' Remdesivir in Potential Covid Therapy
- Adobe: Truly Unstoppable
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