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3 Hotels & Motels Stocks to Watch in a Challenging Industry

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The Zacks Hotels and Motels is gradually coming out of the woods, owing to the reopening of the economy and ramped-up vaccinations. Although occupancy is improving, it is still below the pre-pandemic level. Meanwhile, the spread of the highly contagious Omicron variant has set the alarm bells ringing for the industry. However, people are feeling more optimistic and confident about the prospect of traveling again, courtesy of the rapid pace of vaccinations. 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 players including Hilton Worldwide Holdings Inc. (HLT - Free Report) , Hilton Grand Vacations Inc. (HGV - Free Report) and InterContinental Hotels Group PLC (IHG - Free Report) 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. Some 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 also provide studios, one-bedroom suites, and accommodations to mid-market business and personal travelers.

4 Trends Shaping the Future of Hotels & Motels Industry

Occupancy & RevPAR Still Below Pre-Pandemic Level: Although occupancy is improving, it is still below the pre-pandemic level. Per STR, occupancy for the week ended Dec 4 hit 54.8%, 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 decreased 0.5% and 9.2%, respectively, compared with 2019 for weekly ended Dec 4. According to STR‘s monthly P&L data release, the U.S. hotel profitability faltered in October.

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. The industry players have discontinued share repurchases and suspended dividends in an effort to improve liquidity.

Omicron Variant Poses a Threat: The Omicron variant, which was first found in South Africa, has been rapidly spreading to other parts of the world, consequently increasing the risk of infections. The variant has now been found in 77 countries including the United States. The World Health Organization has warned that the Omicron variant is spreading at an unprecedented rate. Thus, the Omicron variant remains a cause of concern as rising infections may trigger disruptions again, which might hurt the industry.

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 #161, which places it in the bottom 37% of the 253 Zacks industries. Our research shows that the top 50% of the Zacks-ranked industries outperforms 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 Nov 30, 2021, the industry’s earnings estimates for 2022 have gone down 2.8%.

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 Underperforms S&P 500

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

Over this period, the industry has gained 9.8% against the sector’s decline of 11.7%. Meanwhile, the Zacks S&P 500 composite has rallied 26.9%.

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 34.37X compared with the S&P 500’s 15.59X. 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 85.46X and as low as 9.3X, with the median being at 15.53X, as the chart below shows.

EV/EBITDA Ratio Compared With S&P

3 Hotels & Motels Stocks to Watch Out For

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. As of Sep 30, 2021, Hilton's development pipeline comprised nearly 2,620 hotels, with nearly 404,000 rooms across 114 countries and territories — including 27 countries and territories where it currently does not have any running hotels. Moreover, 249,000 rooms in the development pipeline were located outside the United States and 204,000 rooms were under construction.

Hilton currently carries a Zacks Rank #3 (Hold). In the past 60 days, the Zacks Consensus Estimate for 2022 earnings has been revised upward by 0.2%. The Zacks Consensus Estimate for Hilton Grand Vacations’ 2022 sales and earnings per share suggests growth of 41.7% and 92.2%, respectively, from the year-ago period. HLT shares have surged 34% over the past year.

Price and Consensus: HLT

Hilton Grand Vacations: The company develops, markets, sells, and manages vacation ownership resorts. The company has been benefiting from robust Legacy-HGV contract sales and acquisition of Dakota Holdings. The company sports a Zacks Rank #1 (Strong Buy). The company has a trailing four-quarter earnings surprise of 411.1%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Hilton Grand Vacations’ 2022 sales and earnings per share suggests growth of 27.7% and 154.4%, respectively, from the year-ago period. In the past 30 days, the Zacks Consensus Estimate for 2022 earnings has been revised upward by 24.7%. Shares of HGV have jumped 14% in the past three months.

Price and Consensus: HGV

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 #2 (Buy).

The Zacks Consensus Estimate for InterContinental Hotels’ 2022 sales and earnings per share suggests growth of 36% and 94.7%, respectively, from the year-ago period. In the past 30 days, the Zacks Consensus Estimate for 2022 earnings has been revised upward by a penny.

Price and Consensus: IHG



In-Depth Zacks Research for the Tickers Above


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Intercontinental Hotels Group (IHG) - free report >>

Hilton Worldwide Holdings Inc. (HLT) - free report >>

Hilton Grand Vacations Inc. (HGV) - free report >>