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3 Stocks to Make the Most of a Rebounding Hotel Industry

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The worst seems to be over for the hotel industry. Considering the pace of vaccine rollout, Americans are feeling more optimistic about the prospect of traveling again. To support this, hotel operators are focusing on a number of initiatives to meet the needs of their respective customers, while they return back to hotels.

Firstly, hoteliers are focusing on comprehensive processes for cleaning, disinfection and infectious disease prevention. To this end, they have initiated a trained hygiene and well-being leader responsible for a clean and safe environment for colleagues as well as guests. Secondly, they have continued with the practice of evolving their respective contactless experience and leveraged technologies such as mobile and web check-in as well as mobile key. Also, players in the industry have resorted to streamlining of operations with efficient management levels, the benefits of which are likely to prevail even after the onset of the pandemic.

Improving Trends Uplifting Spirits

Despite recovery varying in regions and countries, we can see a light at the end of the tunnel. In the United States, more than 50% of adults have received at least one dose of a COVID-19 vaccine. As a result, we're seeing a significant lift in forward bookings and occupancy as well as lengthening booking windows.

Per the STR report, U.S. hotel occupancy improved week over week, while average daily rate (ADR) was the highest on record for the week from Jul 4 to Jul 10, 2021. Occupancy rates for the week came in at 67.2% compared with 65.4% in the prior week. During this duration, RevPar for U.S. hotels came in at $93.99 compared with $88.51 in the previous week.

Among the top 25 markets tracked by STR, Norfolk/Virginia Beach reported highest occupancy growth of 3% through Jul 4 to Jul 10, 2021 compared with 2019 levels. Miami reported the highest ADR growth of 44.7% (to $225.14) and RevPAR growth of 30.7% (to $152.45) compared with 2019 levels. Overall, ADR for U.S. hotels rose 5.4% (to $139.84) from 2019 levels.

Pent-up Leisure Demand: A Driving Factor

The resilience of demand is clear, as overall room nights are still heavily weighted to leisure. The fact that trips had to be put on hold in the past year (due to the pandemic) is now leading to rebound in leisure transient demand.

Meanwhile, demand in certain regions is primarily being driven by local leisure staycations, sporting events and room blocks for medical personnel related to vaccine rollouts. Moreover, higher demand is being registered in the Middle East and Africa, while recoveries across Asia Pacific, excluding China, and the Caribbean and Latin America (or CALA), have been more uneven.

While leisure transient trends are encouraging, we are fully aware that group and business demand needs to improve significantly to reach full revenue per available room (or RevPAR) recovery. Despite the dynamic environment, it is encouraging to note that the desire to travel and connect has not abated. This along with stimulus checks from the financial relief package, high household savings and business reopenings points toward continued recovery.

Our Take

In summary, all these data points are enough to fuel our optimism. We expect overall leisure demand to strengthen further into the summer months, with varying trends across regions. However, the recovery trajectory is likely to remain non-linear or unevenly distributed owing to the uncertainty of the pandemic.

Investing in the Consumer Discretionary sector might sound profitable right now, it is worth noting that the Zacks Hotels and Motels industry is currently at the top 47% (with the rank of 119) of the 251 Zacks industries, which hints at further growth.

Here, we have highlighted three stocks that are likely to witness earnings growth in 2021 buoyed by robust sales-building initiatives.

3 Hotel Stocks to Watch Out For

Given the backdrop, here are three hotel stocks that are likely to move higher in 2021. With the help of the Zacks Stock Screener, we have zeroed in stocks that carry a Zacks Rank #1 (Strong Buy) or 2 (Buy). These companies have witnessed a sharp rise in share price over the past year. You can see the complete list of today’s Zacks #1 Rank stocks here.

Zacks Investment Research
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Marriott International, Inc. (MAR - Free Report) operates, franchises and licenses hotel, residential as well as timeshare properties worldwide. Shares of this Zacks Rank #1 company have surged 52.6% in the past year compared with the industry’s 39.8% rally. The company has been benefitting from focus on expansion initiatives, digital innovation and loyalty program. It is also witnessing improvement in occupancy and new bookings in Mainland China, as businesses are picking up. The company plans to strengthen presence outside the United States, especially in Asia, Latin America, Middle East and Africa. The Zacks Consensus Estimate for 2021 earnings has been revised 29.6% upward in the past 90 days. The consensus mark for its 2021 earnings also indicates an improvement of 1,188.9% year over year.

Hilton Worldwide Holdings Inc. (HLT - Free Report) , a hospitality company, owns, leases, manages, develops and franchises hotels and resorts. Shares of this Zacks Rank #2 company have gained 53.2% in the past year. The company is benefitting from focus on unit expansion, hotel conversions, strategic partnerships and loyalty program. With restrictions being lifted and more than 97% of its properties operating, Hilton’s business is likely to pick up on improved demand post the summer period. The company is likely to benefit from gradual improvement in travel demand owing to accelerated vaccine distributions as well as ease in government restrictions. During fourth-quarter 2020 conference call, the company stated that it expects reopening of all systemwide rooms by second-quarter 2021. Rise in leisure demand coupled with rebound in corporate transient and group businesses are likely to benefit the company, going forward. The Zacks Consensus Estimate for its 2021 earnings has been revised 12.3% upward in the past 90 days. The consensus mark for its 2021 earnings indicates an improvement of 1,640% year over year.

Playa Hotels & Resorts N.V. (PLYA - Free Report) , together with its subsidiaries, owns, develops and operates resorts in prime beachfront locations in Mexico and the Caribbean. Shares of this Zacks Rank #2 company have gained 88.9% in the past year. The fact that Mexico did not have any travel restrictions in place with respect to pre-flight COVID testing or mandatory quarantines for international tourists upon arrival is causing lesser consumer confusion compared with other destinations. Notably, this has helped sustain business confidence during the reopening phase. Focus on direct booking channels enabled the company to ramp up occupancy faster than many third-party reliant competitors. The Zacks Consensus Estimate for its 2021 earnings has been revised 8.1% upward in the past 90 days. The consensus mark for its 2021 earnings indicates a rise of 37.7% year over year.

In-Depth Zacks Research for the Tickers Above

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Marriott International, Inc. (MAR) - free report >>

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Playa Hotels & Resorts N.V. (PLYA) - free report >>