Hurricane Milton's impact could be felt in sectors such as building supplies, banks and hotels

MW Hurricane Milton's impact could be felt in sectors such as building supplies, banks and hotels

By James Rogers

Hurricane Milton, which is expected to make landfall on Florida's Gulf coast late Wednesday, has been described as 'a dangerous major hurricane' by the National Hurricane Center

Hurricane Milton, which is approaching the Gulf coast of Florida, could have an impact on businesses in a number of sectors, including building materials, banks and hotels, analysts say.

"Milton remains a catastrophic Category 5 hurricane," the National Hurricane Center said in an advisory early Wednesday. The center said the hurricane is expected to make landfall on Florida's Gulf coast late Wednesday as "a dangerous major hurricane."

"The current path of Hurricane Milton could impact the heavily populated Tampa/St. Pete area driving repair demand," Truist Securities analyst Keith Hughes wrote in a note released Tuesday. "We would stress the storm's path could change before landfall and even small adjustments can dramatically impact the work it generates in the Building Product/Durable Goods industry."

Truist thinks that roofing is the most exposed if the storm hits an area with dense housing along the coast, with Beacon Roofing Supply Inc. (BECN) and Owens Corning $(OC)$ the primary names. Flooring retailer Floor & Decor Holdings Inc. $(FND)$ could also see demand as a result of water damage to homes, according to Truist.

Related: Hurricane Milton drives gas demand in Florida, with 16% of stations out of fuel

Post-storm recovery spending represents "a discrete demand catalyst" for the home-improvement sector, Baird Equity Research analyst Peter Benedict wrote in a note released Wednesday. While each storm is unique, and it's still too early to know what Hurricane Milton's effects will be, history suggests "a multi-quarter tailwind" for companies like Home Depot Inc. $(HD)$, Lowe's Cos. $(LOW)$ and Floor & Decor, Benedict said.

Tractor Supply Co. $(TSCO)$ also tends to benefit, albeit for a more condensed period, the analyst added.

Any impact on residential solar installations will depend on the duration of potential outages, Mizuho Securities said. "But worst case, those volumes get pushed to [the first quarter of 2025]," analyst Maheep Mandloi wrote in a note Wednesday. Mizuho expects minimal impact to the operations of SunRun Inc. $(RUN)$ and Sunnova Energy International Inc. (NOVA), given insurance coverage. The analyst firm also expects minimal impact to the utility solar installations of Nextracker Inc. $(NXT)$, Array Technologies Inc. (ARRY) and Shoals Technologies Group Inc. (SHLS), noting that around 2% of fourth-quarter projects in the U.S. are in the hurricane's path.

D.A. Davidson is weighing the impact on banks in the areas likely to be affected by the hurricane. "Based on experience, we would expect the banks in the market to be impacted in multiple ways in the posthurricane period, including a potential deposit boost related to insurance settlements, elevated near term expenses and provision, with lending opportunities related to rebuilding efforts," analyst Gary Tenner wrote in a note Thursday.

Related: Time to evacuate is running out as Hurricane Milton closes in on Florida

"The hurricane is viewed as a 'once in a century' event for the Tampa market, which has not been directly hit by a major hurricane since 1921," Tenner added. "While a somewhat lesser risk given its location, Orlando could also be impacted by the hurricane."

Banks that could be affected include Regions Financial Corp. $(RF)$, Fifth Third Bancorp $(FITB)$, Synovus Financial Corp. $(SNV)$, SouthState Corp. $(SSB)$, Cadence Bank (CADE) and Hancock Whitney Corp. $(HWC)$, D.A. Davidson said.

"Short-term impact could include elevated provision and operating expense levels," Tenner wrote.

Banks may increase reserve levels in the aftermath of the hurricane, driven by a potential increase in delinquencies and nonperforming loans, according to D.A. Davidson. The analyst firm notes that both Hancock Bank and Whitney Bank, which were independent at the time of Hurricane Katrina in 2005, built significant reserve levels post-hurricane.

Related: Florida's Tampa Bay region hasn't been hit directly by a major hurricane since 1921. Milton may be the one.

"From an operational perspective, banks may incur near-term elevated expense levels related to disaster response, property damage, and other operating costs," Tenner wrote, noting that insurance is likely to help the banks recover at least a portion of those costs over time. "Banks will likely experience certain positive offsets over the longer-term, including a surge in deposits as customers take a more conservative approach to spending and benefit from potential disaster relief/insurance funds," he said.

In a note released Wednesday, Bernstein Societe Generale Group examined the hurricane's potential effects on the hotel sector in Florida.

"Although no company would want to profit from a tragedy, the truth is that hurricanes are largely positive for hotel groups, as the benefit from rehousing evacuated/displaced residents tends to outweigh the loss of business to affected areas," analyst Richard Clarke wrote. Bernstein pointed to the presence of major hotel groups such as Hilton Worldwide Holdings Inc. $(HLT)$, InterContinental Hotels Group PLC $(IHG)$ (UK:IHG), Hyatt Hotels Corp. $(H)$ and Marriott International Inc. $(MAR)$ in Florida. "Most of the major hotel groups over-index to Florida, and so will likely see some upside to [third-quarter] numbers," he wrote.

In terms of potential impact, Hurricane Milton, which comes on the heels of Hurricane Helene, is being compared to two named storms in September 2017, Hurricane Irma and Hurricane Maria. Evacuations for those storms affected 6.8 million people in Florida, with mandatory evacuation orders lasting around one week, although many people were displaced for longer, according to Bernstein.

Related: Residents flee Tampa Bay area as Hurricane Milton bears down on Florida coast

With Hurricane Milton approaching, Walt Disney Co.'s $(DIS)$ Walt Disney World has made a number of operational changes. This includes the phased closure of Walt Disney World Theme Parks and the Disney Springs shopping and entertainment complex Wednesday. "It is likely the theme parks will remain closed on Thursday, October 10," Walt Disney World said in a statement late Tuesday. "We will consider opening Disney Springs on Thursday in the late afternoon, with limited offerings," the company added.

Disney's Fort Wilderness Resort & Campground and the Treehouse Villas at Disney's Saratoga Springs Resort & Spa will temporarily close beginning at 11 a.m. Eastern time on Wednesday, the company said, and are likely to remain closed until Oct. 13.

"We believe closing the parks ahead of this very severe storm is the smart and correct decision as it impacts not only on the parks themselves, but also the travel to get there," Raymond James analyst Ric Prentiss said in a note released Wednesday.

-James Rogers

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

October 09, 2024 10:11 ET (14:11 GMT)

Copyright (c) 2024 Dow Jones & Company, Inc.