FTSE 100 bargain buy: Carnival, IAG or TUI shares?

Three of the biggest corporate casualties of the coronavirus have been cruise operator Carnival (LSE: CCL), British Airways owner International Consolidated Airlines (LSE: IAG), and holiday firm TUI (LSE:TUI). All these FTSE 100 members have seen their share prices savaged to a greater extent than the  index itself. 

So, which of these battered top-tier stocks, if any, is the best buy right now?

FTSE 100 bargains?

A lack of earnings guidance makes applying traditional valuation methods tricky at best, and redundant at worst. There’s also no need to discuss dividends, since all of the above have shelved payouts. With this being the case, we need to adopt a more qualitative approach. 

Strengths include all three being established heavyweights. In a sector that could see multiple smaller operators go out of business, this should ultimately mean less competition. All three FTSE 100 constituents have also been proactive in reducing costs (although, sadly, it looks inevitable the some furloughed workers will eventually have their jobs cut).  

On the flip side, all still have sizeable fixed costs they can’t avoid, such as ongoing maintenance of their assets. They also have significant amounts of debt on their balance sheets. 

Keep your distance!

Grounding planes and the like will only get you so far, of course. The ability of the three companies to recover rests on several things beyond their control.

Chief among these is whether there’s a second wave of the virus. If there is, how bad might it be? Since we don’t yet know, I don’t think it’s worth contemplating this scenario for long. Simply expect another massive hit to their respective share prices if it comes to pass. If the possibility of that scares you, steer clear!

Let’s assume, instead, that a big second wave is avoided but protective measures are still enforced.

Should this come about, I suspect IAG may struggle. The compulsory wearing of masks makes more sense than separating passengers by seats but will likely make for a fairly unpleasant experience. The number of customers on a ship may be far greater than a single flight, but Carnival would surely be able to adopt social distancing measures with greater ease.

TUI is perhaps the most problematic of this FTSE 100 bunch since it owns cruise lines, airlines, and a hotel portfolio. The firm also faces growing competition for bookings from nimbler rivals, such as On the Beach.

On the flip side, this diversification could become a buffer for TUI in the better-than-expected scenario since it’s not wholly dependent on one earnings steam. 

And the winner is…

Forget logistical barriers, it’s the psychological wounds inflicted by the coronavirus that could have the greatest lasting impact. As such, I still think it takes courage to buy any of these FTSE 100 stocks right now. This is despite recent rallies suggesting the worst might be over.

Notwithstanding this, I think the cruise line operator just about edges this three-way battle. While undoubtedly biased (I hold), it dominates its industry in a way IAG and TUI can only dream of doing. A 45% market share is about as good as you’ll ever get in the cut-throat travel industry.

Factor in higher operating margins, increasingly active retirees in the West along with growth opportunities in the East and I’d argue the business is the best FTSE 100 ‘bargain’ buy here.