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3 Hotels & Motels Stocks to Watch Despite Industry Concerns
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The Zacks Hotels and Motels industry in 2024 faces challenges from rising costs, geopolitical tensions and ongoing economic uncertainty. However, industry participants are concentrating on growth strategies, including expanding their portfolios, converting properties, forging strategic partnerships and enhancing loyalty programs. The industry has shown resilience through cost-cutting measures and digital innovations. Hotel operators remain focused on balancing profitability while ensuring guest satisfaction continues to improve. Industry players, namely Marriott International, Inc. (MAR - Free Report) , Hilton Worldwide Holdings Inc. (HLT - Free Report) and Hyatt Hotels Corporation (H - Free Report) , are likely to benefit from the factors mentioned above.
Industry Description
The Zacks Hotels and Motels industry comprises companies that own, lease, manage, develop and franchise hotels. Some vacation ownership and exchange firms are also a part of the industry. Several participants own, construct and operate resorts. Some companies develop lodges, villages and mobile accommodations, including modular, skid-mounted ones and central amenities that provide long-term and temporary workforce accommodations. Some industry players develop, market, sell and manage vacation ownership and associated products. Few hoteliers also offer studios, one-bedroom suites and accommodations to mid-market business and personal travelers.
3 Trends Shaping the Future of the Hotels & Motels Industry
High Costs & Inflation Remain a Woe: Industry participants are concerned about higher costs. Rising salaries, wages and benefits have been adding to labor costs. The hospitality sector continues to struggle with labor shortages, driving up wages and reducing service quality. Hotels are finding it difficult to hire and retain staff, leading to reduced capacity and operational challenges. Heightened geopolitical risks and persistent macroeconomic uncertainty are a concern for the industry. Increases in food & beverage and non-operating costs, increased renovation costs and high interest rates are also hurting the industry.
RevPAR & ADR: Although RevPAR and ADR are expected to grow year over year in 2024, the projected growth rate declined compared with the forecast made in January. Per STR, the forecast for revenue per available room now is pegged at a 2% year-over-year increase, down from 4.1% projected in January. On the other hand, ADR is now expected to witness a growth of 2.1%, a decrease from the 3.1% projected in January. STR predicts RevPAR growth for 2025 to be 2.6% year over year in 2025, down from the earlier projection of 3.5%.
Digitalization to Drive Growth: Hotel owners are focused on maintaining the balance between maximizing hotel profitability and driving guest satisfaction. To this end, hoteliers have leveraged mobile and web check-in and mobile key technologies. These hoteliers also increased the use of digital tools to strengthen infrastructure, grow online package sales, enable self-service bookings, make real-time offerings and enhance the overall customer experience. This and the emphasis on pricing optimization and merchandising capabilities will likely help hoteliers capture additional market share.
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 the average of the Zacks Rank of all the member stocks, indicates dull near-term prospects. The Zacks Hotels and Motels industry currently carries a Zacks Industry Rank #145, which places it in the bottom 42% of the 251 Zacks industries. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.
The industry's position in the bottom 50% of the Zacks-ranked industries results from a negative earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, analysts are gradually losing confidence in this group's earnings growth potential. Since Aug. 31, 2024, the industry's earnings estimate for 2024 dropped 0.2%.
Before we present a few stocks you may want to keep an eye on, let's look at the industry's recent stock-market performance and valuation picture.
Industry Underperforms the S&P 500
In the past year, the Zacks Hotels and Motels industry has lagged the S&P 500 but has outperformed the sector. Over this period, the industry appreciated by 18.7% compared with the sector's increase of 8.5%. The Zacks S&P 500 composite has increased 25.7%.
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 19.87X compared with the S&P 500's 25.07X. It is also below the sector's trailing 12-month EV/EBITDA ratio of 11.92X.
Over the last five years, the industry has traded as high as 23.97X and as low as 10.02X, with the median being at 15.27X, as the chart below shows.
EV/EBITDA (F12M)
3 Hotels & Motels Stocks to Watch Out For
Marriott: The company has been benefiting from robust leisure demand and solid global booking trends. Also, substantial RevPAR growth in international markets added to the upside. During the second quarter, it registered nearly 5% growth in global RevPAR, with ADR increasing 3% year over year and occupancy reaching about 73%. The emphasis on expansion initiatives, digital innovation and the loyalty program bodes well. However, dismal performance in China and high debt levels are headwinds.
Marriott currently carries a Zacks Rank #3 (Hold). The company’s top line in 2024 is likely to witness a growth of 6.1% year over year. MAR's shares have gained 15.8% in the past year.
Price and Consensus: MAR
Hyatt Hotels: The company is benefiting from a gradual increase in demand, new hotel openings and acquisition initiatives. During the second quarter, system-wide comparable RevPAR increased 4.7% year over year, owing to increased business and group travel. Much optimism prevails on account of group bookings and confidence in the ongoing recovery of business transient demand and the steady levels of leisure transient demand.
H currently carries a Zacks Rank #3. In the past 30 days, the Zacks Consensus Estimate for 2024 earnings has been revised upward by 4.2%. The Zacks Consensus Estimate for Hyatt 2024 EPS suggests growth of 55.1% from the year-ago period’s figure. Hyatt's shares have gained 35.9% in the past year. You can see the complete list of today’s Zacks #1 Rank stocks here. .
Price and Consensus: H
Hilton: The company is benefiting from improvements in RevPAR, attributed to higher occupancy rates and ADR on the back of solid business and leisure transient demand. Its focus on unit expansion, hotel conversions, strategic partnerships and loyalty programs bode well. The company expects positive development trends to continue on the back of new development and conversion opportunities. For third-quarter 2024, management anticipates system-wide RevPAR to increase in the 2-3% band on a year-over-year basis.
Hilton currently carries a Zacks Rank #3. The Zacks Consensus Estimate for Hilton 2024 EPS suggests growth of 13.2% from the year-ago period’s levels. HLT's shares have jumped 42.2% in the past year.
Price and Consensus: HLT
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The Zacks Hotels and Motels industry in 2024 faces challenges from rising costs, geopolitical tensions and ongoing economic uncertainty. However, industry participants are concentrating on growth strategies, including expanding their portfolios, converting properties, forging strategic partnerships and enhancing loyalty programs. The industry has shown resilience through cost-cutting measures and digital innovations. Hotel operators remain focused on balancing profitability while ensuring guest satisfaction continues to improve. Industry players, namely Marriott International, Inc. (MAR - Free Report) , Hilton Worldwide Holdings Inc. (HLT - Free Report) and Hyatt Hotels Corporation (H - Free Report) , are likely to benefit from the factors mentioned above.
Industry Description
The Zacks Hotels and Motels industry comprises companies that own, lease, manage, develop and franchise hotels. Some vacation ownership and exchange firms are also a part of the industry. Several participants own, construct and operate resorts. Some companies develop lodges, villages and mobile accommodations, including modular, skid-mounted ones and central amenities that provide long-term and temporary workforce accommodations. Some industry players develop, market, sell and manage vacation ownership and associated products. Few hoteliers also offer studios, one-bedroom suites and accommodations to mid-market business and personal travelers.
3 Trends Shaping the Future of the Hotels & Motels Industry
High Costs & Inflation Remain a Woe: Industry participants are concerned about higher costs. Rising salaries, wages and benefits have been adding to labor costs. The hospitality sector continues to struggle with labor shortages, driving up wages and reducing service quality. Hotels are finding it difficult to hire and retain staff, leading to reduced capacity and operational challenges. Heightened geopolitical risks and persistent macroeconomic uncertainty are a concern for the industry. Increases in food & beverage and non-operating costs, increased renovation costs and high interest rates are also hurting the industry.
RevPAR & ADR: Although RevPAR and ADR are expected to grow year over year in 2024, the projected growth rate declined compared with the forecast made in January. Per STR, the forecast for revenue per available room now is pegged at a 2% year-over-year increase, down from 4.1% projected in January. On the other hand, ADR is now expected to witness a growth of 2.1%, a decrease from the 3.1% projected in January. STR predicts RevPAR growth for 2025 to be 2.6% year over year in 2025, down from the earlier projection of 3.5%.
Digitalization to Drive Growth: Hotel owners are focused on maintaining the balance between maximizing hotel profitability and driving guest satisfaction. To this end, hoteliers have leveraged mobile and web check-in and mobile key technologies. These hoteliers also increased the use of digital tools to strengthen infrastructure, grow online package sales, enable self-service bookings, make real-time offerings and enhance the overall customer experience. This and the emphasis on pricing optimization and merchandising capabilities will likely help hoteliers capture additional market share.
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 the average of the Zacks Rank of all the member stocks, indicates dull near-term prospects. The Zacks Hotels and Motels industry currently carries a Zacks Industry Rank #145, which places it in the bottom 42% of the 251 Zacks industries. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.
The industry's position in the bottom 50% of the Zacks-ranked industries results from a negative earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, analysts are gradually losing confidence in this group's earnings growth potential. Since Aug. 31, 2024, the industry's earnings estimate for 2024 dropped 0.2%.
Before we present a few stocks you may want to keep an eye on, let's look at the industry's recent stock-market performance and valuation picture.
Industry Underperforms the S&P 500
In the past year, the Zacks Hotels and Motels industry has lagged the S&P 500 but has outperformed the sector. Over this period, the industry appreciated by 18.7% compared with the sector's increase of 8.5%. The Zacks S&P 500 composite has increased 25.7%.
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 19.87X compared with the S&P 500's 25.07X. It is also below the sector's trailing 12-month EV/EBITDA ratio of 11.92X.
Over the last five years, the industry has traded as high as 23.97X and as low as 10.02X, with the median being at 15.27X, as the chart below shows.
EV/EBITDA (F12M)
3 Hotels & Motels Stocks to Watch Out For
Marriott: The company has been benefiting from robust leisure demand and solid global booking trends. Also, substantial RevPAR growth in international markets added to the upside. During the second quarter, it registered nearly 5% growth in global RevPAR, with ADR increasing 3% year over year and occupancy reaching about 73%. The emphasis on expansion initiatives, digital innovation and the loyalty program bodes well. However, dismal performance in China and high debt levels are headwinds.
Marriott currently carries a Zacks Rank #3 (Hold). The company’s top line in 2024 is likely to witness a growth of 6.1% year over year. MAR's shares have gained 15.8% in the past year.
Price and Consensus: MAR
Hyatt Hotels: The company is benefiting from a gradual increase in demand, new hotel openings and acquisition initiatives. During the second quarter, system-wide comparable RevPAR increased 4.7% year over year, owing to increased business and group travel. Much optimism prevails on account of group bookings and confidence in the ongoing recovery of business transient demand and the steady levels of leisure transient demand.
H currently carries a Zacks Rank #3. In the past 30 days, the Zacks Consensus Estimate for 2024 earnings has been revised upward by 4.2%. The Zacks Consensus Estimate for Hyatt 2024 EPS suggests growth of 55.1% from the year-ago period’s figure. Hyatt's shares have gained 35.9% in the past year. You can see the complete list of today’s Zacks #1 Rank stocks here. .
Price and Consensus: H
Hilton: The company is benefiting from improvements in RevPAR, attributed to higher occupancy rates and ADR on the back of solid business and leisure transient demand. Its focus on unit expansion, hotel conversions, strategic partnerships and loyalty programs bode well. The company expects positive development trends to continue on the back of new development and conversion opportunities. For third-quarter 2024, management anticipates system-wide RevPAR to increase in the 2-3% band on a year-over-year basis.
Hilton currently carries a Zacks Rank #3. The Zacks Consensus Estimate for Hilton 2024 EPS suggests growth of 13.2% from the year-ago period’s levels. HLT's shares have jumped 42.2% in the past year.
Price and Consensus: HLT