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3 Hospitality Stocks Poised for Growth in 2019

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The hospitality sector downturns are often stimulated by external catalysts. The sector faced softer demand owing to the US-China trade spat last year. Also, President Trump’s stringent policies made the United States a somewhat less popular tourist destination, leaving the hotel, cruise and hospitality businesses slightly dry.

However, since the beginning of 2019, both the U.S. lodging and leisure industries have experienced an upside and the trend is likely to continue in the quarters to come. The appreciation can be attributed to strong GDP growth, healthy labor market, rising wages and growing disposable income.

A Favorable 2019 for Hoteliers Despite Near-Term Risks

Per the U.S. Travel Association, international and domestic travel in the first few months of 2019 is expected to grow in a decelerating rate. This is because softening global growth and the increase in the value of the dollar against other currencies throughout 2018 may dampen international inbound travel in the near term. This in turn will impede the United States’ efforts to increase its share in the global international travel market.

Then again, PwC forecasts the industry’s revenue per available room (RevPAR) growth for 2019 at 2.3% as compared with 2.9% recorded in 2019. RevPAR growth is likely to be largely driven by a 2.7% increase in average daily rate. Occupancy, in the meanwhile, is expected to slip to 65.9% this year.

However, it should be noted that for the first time since 2007, a higher daily rate may solely drive RevPAR. Major hoteliers like Hyatt (H - Free Report) , Marriott (MAR - Free Report) and Hilton Worldwide Holdings Inc. (HLT - Free Report) are focusing on boosting revenues through unit expansion. Embracing digital innovation and adopting 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 entice customers to visit frequently, stay longer and spend more.

According to PwC’s outlook, demand growth of 1.6% in 2019 is likely to keep pace with a projected supply growth of 2.1%. Also, 2018 has been a record-breaking year for the lodging industry given an optimal demand supply balance. Per CBRE researchers, the hotel industry is likely to continue on a growth trajectory in 2019. Additionally, CBRE expects overall returns on hotels to be the highest for any commercial real-estate sector over the next three years.

How Will the Cruise Industry Hold Up?

The cruise industry in 2019 is likely to benefit from increased travel demand. The role of technology is playing a massive role in driving demand for cruises. The companies continue to make use of digital tools for marketing, product development and enhancing consumer experience. The initiatives include revamped websites, new vacation packaging capabilities, support for mobile apps and increased bandwidth onboard to help guests remain well-connected while traveling.

Moreover, Royal Caribbean Cruises Ltd. (RCL - Free Report) noted that the Wave Season has seen a solid start and overall booking in 2019 is likely to exceed the record-high mark in 2018.Per the Cruise Lines International Association, the cruise industry is expected to grow through 2019 with 30 million cruisers, up 6% from 28.2 million in 2018.

Picking the Right Stocks

We have taken the help of Zacks Stock Screener to pick hotel and cruise stocks which carry a Zacks Rank #1 (Strong Buy) or 2 (Buy). These stocks are expected to see significant earnings growth in 2019. You can see the complete list of today’s Zacks #1 Rank stocks here.

Hilton carries a Zacks Rank #2. The company is focusing on unit growth to capture market share and fend off competition. During the fourth quarter of 2018, Hilton opened 142 hotels, taking the total room count to 22,500. It also achieved net unit growth of 19,000 rooms, indicating roughly 7% increase from the prior-year quarter.

The Zacks Consensus Estimate for 2019 earnings is pegged at $3.75, reflecting 34.4% growth from the year-ago quarter.

Belmond Ltd. , which offers exceptional hotel and luxury travel adventures, carries a Zacks Rank #2. The consensus estimate for 2019 earnings is pegged at 36 cents, suggesting 20% year-over-year growth.

Royal Caribbean has been consistently witnessing strong demand from its key markets of operation. In 2018, demand for the company’s brands and itineraries increased sharply. This trend is expected to continue in 2019. On the supply front, the company is steadfast in increasing capacity to match the rising demand. Based on the current ship orders and predicted capital expenditure, the company believes its capacity growth for 2019, 2020, 2021, 2022 and 2023 will be 8.6%, 4.1%, 9.0%, 7.7% and 2.8%, respectively. Capacity growth of 10.8% is predicted for the first quarter of 2019.

The consensus estimate for 2019 earnings is pinned at $9.95, suggesting 12.3% year-over-year growth. The company carries a Zacks Rank #2.

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