The U.S. hotel industry may face an array of challenges in 2020. Visa restrictions will certainly make it difficult for international travelers to gain entry into the United States. Also, election-related uncertainty this year may affect demand. At the same time, apprehensions of a recession and saturation of some branded hoteliers add to the concerns.
But the U.S. economy continues to hold ground, displaying outstanding resilience. What’s more, consumer spending has increased significantly and consumers are now more confident about their well-being. These factors will certainly drive hotel demand this year.
The pace of U.S. economic expansion picked up in the third quarter of 2019. Per the Bureau of Economic Analysis, the economy grew at an annualized rate of 2.1% in the three months ended Sep 30, 2019, versus the initial estimate of 1.9% and 2% in the second quarter. And as consumer outlays remain healthy, led by record low unemployment rate, investors expect the economy to continue expanding this year.
Per the Commerce Department, consumer outlays increased 0.4% in November, its strongest gain since July. Government data showed that there were significant purchases of automobiles and trucks in the month, while spending on healthcare was pretty high. These indicate that households have enough spending capabilities to keep the economy expanding at a steady pace in the near term.
Last but not the least, American consumers were very confident about the state of the U.S. economy at the end of last year. The U.S. Conference Board’s index of consumer confidence continues to remain high, as it came in at 126.5 for December. In fact, November’s reading was raised from 125.5 to 126.8. Moreover, the index that shows how consumers feel about the economy right now rose 4.4 points to 170. But what made Americans feel so confident? It’s a strong labor market and the lowest level of The unemployment in a half-century.
Needless to say, tax cuts have been a blessing in disguise for the hotel industry. On an individual level, tax cuts will boost paychecks for many workers, resulting in higher discretionary income for leisure travel. This in turn will boost revenues for hoteliers. Major hotels, in the meantime, will advantage from the corporate tax cut and spend the surplus money on business development and growth in America.
The Average daily rate (ADR), in the meantime, is expected to increase to $131 by the end of 2020, representing an average yearly increase of 0.6%. The national hotel occupancy is anticipated to come in at a healthy 65.6% to 65.8% in 2020, per HVS consultants.
4 Solid Hotel Stocks to Keep an Eye On
It will, therefore, be prudent to watch out for fundamentally sound hotel stocks that can make the most of the bullish scenario. We have, thus, highlighted five hotel stocks that have the propensity to grow in the near term.
Marriott Vacations Worldwide Corporation (VAC - Free Report) develops, markets, sells, and manages vacation ownership and related products under the Marriott Vacation Club, Grand Residences by Marriott, Sheraton, Westin, Hyatt Residence Club brands, and Marriott Vacation Club Pulse brands. Strong revenue-building capacities, digital innovation and synergies from ILG acquisition are some of the major factors backing Marriott Vacations Worldwide.
The company currently sports a Zacks Rank #1 (Strong Buy). The company’s expected earnings growth rate for the current year is 35.7% versus the Hotels and Motels industry’s projected rise of 7.1%. You can see the complete list of today’s Zacks #1 Rank stocks here.
Hilton Worldwide Holdings Inc. (HLT - Free Report) owns, leases, manages, develops, and franchises hotels and resorts. It operates through two segments, Management and Franchise, and Ownership. Aggressive expansion strategies, industry-leading loyalty program coupled with an asset-light business model currently bode well for Hilton.
The company currently has a Zacks Rank #3 (Hold). The company’s expected earnings growth rate for the current year is nearly 38%.
Wyndham Hotels & Resorts, Inc. (WH - Free Report) operates as a hotel franchisor. The company licenses its hotel brands, including Super 8, Days Inn, Ramada, Microtel Inn & Suites, La Quinta and Wingate.
The company currently has a Zacks Rank #3. The company’s expected earnings growth rate for the current year is 20.7%.
InterContinental Hotels Group PLC (IHG - Free Report) owns, manages, franchises, and leases hotels in the Americas.
The company currently has a Zacks Rank #3. The company’s expected earnings growth rate for the current year is 12.1%.
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