3 Hotels & Motels Stocks to Watch Despite Industry Woes

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The Zacks Hotels and Motels industry is gradually coming out of the woods, courtesy of improving demand. Although occupancy is improving, it is still below the pre-pandemic level. However, people are feeling more optimistic and confident about the prospect of traveling again. To capitalize on the sentiment, hotel operators are increasingly focusing on a number of initiatives to meet the needs of their customers as they return to hotels. The industry has exhibited resilience on the back of cost-saving initiatives and digital enhancements. Hotel owners continue to focus on maintaining a balance between maximizing hotel profitability while driving guest satisfaction. The industry players, namely Marriott International, Inc. MAR, Hilton Worldwide Holdings Inc. HLT and InterContinental Hotels Group PLC IHG, have been gaining from the prevailing scenario.

Industry Description

The Zacks Hotels and Motels industry comprises companies that own, lease, manage, develop and franchise hotels. Some vacation ownership and exchange companies are also part of the industry. Several industry participants own, develop, and operate resorts. Some companies develop lodges and villages, and mobile accommodations, which include modular, skid-mounted accommodation, as well as central amenities that provide long-term and temporary workforce accommodations. Some of the industry players develop, market, sell, and manage vacation ownership and associated products. Few hoteliers provide studios, one-bedroom suites, and accommodations to mid-market business and personal travelers as well.

4 Trends Shaping the Future of Hotels & Motels Industry

Occupancy Still Below Pre-Pandemic Level: Although occupancy is improving, it is still below the pre-pandemic level. Per STR, occupancy for the week ended Apr 9 hit 66.4%, in sharp contrast to the industry’s historic low of 22% in mid-April 2020. However, occupancy is still below the pre-pandemic level. Per the same report, the average daily rate (ADR) and RevPAR increased10.6% and 5.4%, respectively, compared with 2019 for the weekly period ended Apr 9. The uptrend was driven by a solid leisure demand in the United States. Easing COVID-19 restrictions, rise in vaccination rates and improving business activity added to the upside. Hotel demands in 2022 are likely to be driven by leisure travelers from Europe and Asia-Pacific.

High Costs Remain a Woe: Higher costs remain a concern for the industry participants. Given that the coronavirus pandemic continues to impact the global travel industry, hoteliers have been focusing on cost-saving measures to counter the crisis. Employees in the industry are grappling with pay cuts, shortened working hours and furloughs. Some of the industry players have discontinued share repurchases and suspended dividends in an effort to improve liquidity.

Digitalization to Drive Growth: Hotel owners continue to focus on maintaining a balance between maximizing hotel profitability while driving guest satisfaction. To this end, hoteliers have leveraged technologies such as mobile and web check-in as well as mobile key. The hoteliers have also increased the use of these digital tools to strengthen infrastructure, grow online package sales, enable self-service bookings, make real-time offerings and enhance the overall customer experience. This, along with an emphasis on pricing optimization and merchandising capabilities, are likely to enable the hoteliers to capture additional market share.

Initiatives to Attract Customers: Firstly, hoteliers are committed to comprehensive processes for cleaning, disinfection and infectious disease prevention. To this end, they have instated a trained hygiene and well-being leader responsible for a clean and safe environment for staff and guests. Secondly, the companies have been making every effort to enhance the contactless experience and leveraging technologies such as mobile and web check-in as well as mobile key. The industry players have resorted to streamlining operations with efficient management levels, the benefits of which are likely to remain even after the pandemic fades out.

Zacks Industry Rank Indicates Dismal Prospects

The Zacks Hotels and Motels industry is grouped within the broader sector.

The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates dismal near-term prospects. The Zacks Hotels and Motels industry currently carries a Zacks Industry Rank #239, which places it in the bottom 6% of the 253 Zacks industries. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.

The industry’s position in the top 50% of the Zacks-ranked industries is the result of a positive earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are gradually losing confidence in this group’s earnings growth potential. Since Apr 30, 2021, the industry’s earnings estimates for 2022 have declined 3.8%.

Before we present a few stocks you may want to keep an eye on, let’s take a look at the industry’s recent stock-market performance and valuation picture.

Industry Outperforms S&P 500

The Zacks Hotels and Motels industry has outperformed both the Zacks S&P 500 composite and its own sector in the past year.

Over this period, the industry has gained 8.9% against the sector’s decline of 25.4%. Meanwhile, the Zacks S&P 500 composite has increased 6.7%.

One-Year Price Performance

Hotels & Motels Industry’s Valuation

On the basis of the forward 12-month EV/EBITDA, which is a commonly used multiple for valuing Hotels and Motels stocks, the industry is currently trading at 19.69X compared with the S&P 500’s 16.62X. It is also above the sector’s trailing 12-month EV/EBITDA ratio of 12.94X.

Over the last five years, the industry has traded as high as 23.74X and as low as 9.77X, with the median being at 13.68X, as the chart below shows.

Enterprise Value-to EBITDA Ratio (Past 5 Years)

3 Hotels & Motels Stocks to Watch Out For

Marriott: Marriott is a leading worldwide hospitality company focused on lodging management and franchising. The company is consistently trying to expand its presence worldwide and capitalize on the demand for hotels in international markets. Moving ahead, it plans to significantly expand its global portfolio of luxury and lifestyle brands. At the end of fourth-quarter 2021, Marriott’s development pipeline totaled nearly 2,831 hotels, with approximately 485,000 rooms. Nearly 202,000 rooms were under construction. During fourth-quarter 2021, the company added 120 new properties (20,440 rooms) to its worldwide lodging portfolio. In 2022, Marriott anticipates net rooms growth in the range of 3.5-4%.

Marriott currently carries a Zacks Rank #2 (Buy). In the past 90 days, the Zacks Consensus Estimate for 2022 earnings has been revised upward by 4.9%. The Zacks Consensus Estimate for Marriott’s 2022 sales and earnings per share suggests growth of 40.3% and 73%, respectively, from the year-ago period. MAR shares have surged 30.4% over the past year. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Price and Consensus: MAR

Hilton: Hilton is a hospitality company that owns, leases, manages, develops, and franchises hotels and resorts. In a bid to maintain its position as the fastest-growing global hospitality company, it continues to drive unit growth. In 2021, Hilton opened nearly 414 new hotels. It achieved net unit growth of 67,000 rooms, marking an improvement of 5.6% from the prior-year quarter’s levels. During fourth-quarter 2021, Hilton opened 94 new hotels. It achieved net unit growth of nearly 13,100 rooms.

Hilton currently carries a Zacks Rank #3 (Hold). In the past seven days, the Zacks Consensus Estimate for 2022 earnings has been revised upward by 0.5%. The Zacks Consensus Estimate for Hilton Grand Vacations’ 2022 sales and earnings per share suggests growth of 38.2% and 89.4%, respectively, from the year-ago period. HLT’s shares have surged 31.6% over the past year.

Price and Consensus: HLT

InterContinental Hotels: The company manages, franchises, and leases hotels in the Americas, Europe, Asia, the Middle East, Africa, and Greater China. The company has been gaining from robust leisure travel demand and improvement in RevPAR. Robust group bookings and international trips continue to drive the company’s performance. InterContinental Hotels carries a Zacks Rank #3.

The Zacks Consensus Estimate for IHG’s 2022 sales and earnings per share suggests growth of 23.2% and 72.8%, respectively, from the year-ago period.

Price and Consensus: IHG

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Intercontinental Hotels Group (IHG) : Free Stock Analysis Report

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