The prevailing dispute between the United States and China Trade threaten to wreak most markets that are sensitive to business cycle fluctuations. The hospitality industry therefore might not be able to survive the effects of a trade clash. The hotel space, which largely depends on consumer discretionary spending, is constantly apprehensive about a trade war dampening consumer confidence.
It is also to be noted that President Trump’s stringent policies have made United States a somewhat less popular tourist destination. Per the UN World Tourism Organization, United States reported a 2% decline in foreign tourist count in 2017.
However, there are a few factors backing hotel stocks amid the turmoil. Let’s take a look.
Why Trade Disputes Might Not be as Harrowing
Per the U.S. Travel Association, a large part of employment in the United States is directly reliant on tourism. Travel industry added 3,900 jobs in March after the robust 8,400 addition in February..
Moreover, per the official data, Chinese tourism accounted for $33 billion spending in the United States in 2016. Further, U.S. National Travel and Tourism Office forecasts tourist count to reach 4.5 million by 2022. China’s outbound tourism is currently growing around 6% per year, with predictions of more than 200 million Chinese traveling overseas by 2022.
Although a brewing trade war might deal a blow to United States’ tourist numbers from China, it wouldn’t be very severe as the major beneficiaries of Chinese tourism in America are democratic states such as California, Illinois, Massachusetts and New York.
Also, a rivalry that can affect tourism and hospitality industry goes against China’s business interest. This is because a number of its tour agencies, tour companies and airlines have huge holdings in the United States. Even U.S. tour operators are linked with large hoteliers who have significant hold in China.
Given this scenario, the countries might not want to put their tourism industry at stake by waging a trade war.
US Hotels to Sustain Modest Growth
Despite the challenges, we see no reason why the U.S. hotel industry should not continue to gain on both the top and the bottom line. The domestic economy, currently, is favorable for hospitality companies. The overall economy shows increased consumer demand for goods and services. According to the Fed’s latest forecast, the economy will grow at a reasonable rate of 2.7% in 2018. Unemployment is predicted at 3.8% for 2018 versus the current 4.1%. Moreover, high real disposable income and low inflation are resulting in the higher purchasing behavior. The fourth quarter of 2017 saw the highest consumer spending after three years.
Moreover, a strong economy, higher income and increased consumer confidence have driven demand for both leisure and business travel. The supply-demand environment in the United States has been favorable since 2010, with growth in demand outpacing supply growth.
Given the positive economic outlook for the remainder of the year, which could result in the ninth successive year of occupancy growth for the U.S. lodging industry, PricewaterhouseCoopers (PwC) expects demand (2.1% rise) to outpace supply (increase of 1.9%) in 2018. Moreover, per a report by Deloitte, the hotel industry is estimated to sustain a strong 5% to 6% growth throughout 2018.
Also, the Zacks Hotels and Motels industry has rallied 32% in the past year, outperforming the S&P 500 market’s 14.7%.
Initiatives Adopted by Bigwigs Encourage
In order to capitalize on the growing demand for hotels and leisure, top hoteliers like Marriot International (MAR - Free Report) , Hilton (HLT - Free Report) and Hyatt (H - Free Report) are continuously opting for ways to provide highest consumer satisfaction. By moving toward launching more lifestyle hotels, these operators are increasingly targeting consumers more concerned about health, convenience, service and ethical sourcing of food, who also form a significant part of the population.
Embracing digital innovations and loyalty programs, these hotel bigwigs are relentlessly expanding their customer base and market share. Many hoteliers are also setting up analytics tools to understand consumer preferences and deliver a differentiated experience, which could eventually motivate customers to visit frequently, stay longer and spend more.
These, therefore, are a few reasons why the broader hotel space should continue doing well in both the short and medium term.
Picking the Right Stocks
We have taken the help of Zacks Stock Screener to pick hotel stocks which carry a Zacks Rank #1 (Strong Buy) or 2 (Buy). These stocks are expected to see significant earnings growth in 2018. You can see the complete list of today’s Zacks #1 Rank stocks here.
Hilton Grand Vacations Inc. (HGV - Free Report) , a subsidiary of Hilton, sports a Zacks Rank #1. The Zacks Consensus Estimate for the company’s earnings in 2018 is pegged at $2.83, reflecting 43.7% growth over 2017.
Marriott Vacations Worldwide Corporation (VAC - Free Report) , also flaunts a Zacks Rank #1, and is a developer, marketer, seller and manager of vacation ownership resorts and vacation club, destination club and exchange programs, principally under the Marriott and Ritz-Carlton brands and trademarks. The consensus estimate for 2018 earnings is pegged at $6.94, suggesting a 20.1% year-over-year growth.
The consensus estimate for Wyndham Worldwide Corporation’s 2018 earnings is $7.17 and is projected to grow 30.4% from the prior year. The company holds a Zacks Rank #2.
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