3 Hotels & Motels Stocks to Watch Despite Industry Headwinds

The Zacks hotel and motel industry continues to bear the brunt of the dismal RevPAR and occupancy. Additionally, industry participants saw a sharp spike in spending due to coronavirus shutdowns. The recurrence of coronavirus cases in several parts of the world is another cause for concern.

However, the reopening of the economy and the introduction of the COVID-19 vaccine have fueled investor optimism. In fact, it's worth noting that industry players like Marriott International, Inc. (MAR), Hilton Worldwide Holdings Inc. (HLT), and Hyatt Hotels Corporation (H) have benefited from the reopening of the world economy.
Industry description
The Zacks Hotels and Motels industry includes companies that own, lease, manage, develop, and franchise hotels and resorts. Some vacation home and currency exchange offices are also part of the industry.
3 trends that will shape the future of the hotel and motel industry
Gloomy demand is hurting the industry: The coronavirus outbreak has had a negative impact on travel demand around the world. With meetings and conferences being canceled, business travelers grounded, and leisure travelers banned from traveling due to the pandemic, hotels around the world have witnessed booking cancellations and closings. Most industry participants have also withdrawn guidelines for the virus outbreak. According to a STR report, RevPAR saw a sharp drop of 50.1% for 2020 while the Average Daily Rate (ADR) fell 21.3%. Before the pandemic, STR had forecast a flat RevPAR for 2020 - the lowest forecast since the 2009 recession. Demand and supply declined 35.7% and 3.6% respectively in 2020.

High costs remain a problem: higher costs continue to be a concern for industry participants. Given the ongoing impact of the coronavirus pandemic on the global travel industry, hoteliers are focusing on cost-saving measures to counter the crisis. Employees in the industry are faced with wage cuts, layoffs, reduced working hours and vacations. In particular, players in the industry have not only stopped buying back shares, but have also suspended dividends to improve liquidity.

Reopening the Economy to Promote Growth: The industry has benefited from the reopening of the economy. According to STR, the occupancy rate for the week ending March 27 was 57.9%, compared to the industry's all-time low of 22% in mid-April. However, occupancy is still well below pre-pandemic levels. The occupancy, which decreased by 36.6% in 2020, is expected to increase by 16.6% in 2021. Additionally, according to STR, RevPAR, demand and supply are expected to increase 21.6%, 18% and 5.4% respectively in 2021. The industry is benefiting from the increasing demand for travel in China. With the outbreak under sufficient control, domestic travel restrictions will be lifted, resulting in an improvement in the daily number of passenger flights in China. In addition, companies are increasing.
Zacks' industry rank indicates dire prospects
The Zacks Hotels and Motels industry is grouped under the broader consumer discretionary sector.

The group's Zacks Industry Rank, which is basically the average of the Zacks Rank of all member stocks, suggests grim near-term prospects. The Zacks Hotels and Motels industry currently ranks 207th in the Zacks industry, placing it in the bottom 18% of the 253 Zacks industries. Our research shows that the top 50% of Zacks industries outperform the bottom 50% by a factor of more than 2 to 1.

The industry's position in the top 50% of the industries rated by Zacks is the result of a positive earnings outlook for individual companies as a whole. Looking at the revisions to the aggregate earnings estimate, it appears that analysts are beginning to lose confidence in the earnings growth potential of this group. As of October 31, 2020, the industry's earnings estimates for the current year have fallen 37.6%.

Before we go into a few stocks you might want to keep an eye on, let's take a look at recent stock market performance and the industry's valuation picture.
Industry outperforms S&P 500 & Sector
The Zacks Hotels and Motels industry outperformed its own sector and the Zacks S&P 500 Composite last year.

During that period, the industry grew 93.2%, compared to an industry growth of 62%. In the meantime, the Zacks S&P 500 Composite has grown by 53.6% over the same period.
Evaluation of the hotel and motel industry
Based on 12 month EV / EBITDA, which is a commonly used multiple for valuing hotels and motel stocks, the industry is currently trading at 18.29X compared to 17.21X for the S&P 500. It is up also above the sector's trailing 12-month EV / EBITDA ratio of 11.44X.

Over the past five years, the industry has traded 21.91 times and 9.06 times, with the median trading at 12.24 times, as the following graph shows.
3 Hotels & Motels stocks trying to survive the industry's troubles
Marriott International: Marriott is a leading global hotel company focused on property management and franchising. The company is consistently striving to expand its presence worldwide. In the coming days, the global portfolio of luxury and lifestyle brands is to be expanded significantly. At the end of the fourth quarter of 2020, Marriott's development pipeline comprised nearly 2,900 hotels with more than 498,000 rooms. Another 229,000 rooms were under construction. Despite the coronavirus pandemic, the company added around 63,000 rooms worldwide. For 2021, the company expects net room growth in the range of 3% to 3.5%.

Marriot currently has a Zacks Rank 3 (Hold). For the past seven days, the Zacks consensus estimate for the final 2021 result has remained stable. The company's shares are up 52.5% over the past six months.
Price and consensus: MAR
Hilton: Hilton is a hotel company that owns, rents, manages, develops and franchises hotels and resorts. To maintain its position as the fastest growing global hotel company, the company continues to grow its units. As of December 31, 2020, Hilton's development pipeline included nearly 2,570 hotels with approximately 397,000 rooms in 116 countries and territories - including 31 countries and territories that currently have no hotels. Additionally, 233,000 rooms were in the development pipeline outside of the United States and 204,000 rooms were under construction. In the fourth quarter of 2020, the company signed several contracts to expand its resort portfolio. This includes in particular expansion agreements for the Curio Collection in Mexico and the Tapestry Collection in Portugal. With the opening of Oceana Santa Monica, the LXR brand was also launched in the United States.

Hilton currently ranks 3rd in Zacks. For the past seven days, the Zacks consensus estimate for the 2021 result has remained stable. The company's shares are up 36.7% over the past six months.
Price and Consensus: LDS
Hyatt: Hyatt strives to differentiate its brands through different travel experiences. The company is also consistently trying to expand its presence worldwide and has expansion plans in Asia Pacific, Europe, Africa, the Middle East and Latin America. As the economy opens up, there are signs of improvement in larger parts of China. Additionally, the company stated that outside of China and South Korea, there are a few markets that have seen increases in demand, albeit at a slower pace. In the fourth quarter of 2020 in particular, the occupancy rate in Greater China was almost 60%. Without Hong Kong, Macau and Taiwan, the occupancy rate was around 70%. The company expects RevPAR to improve in the second half of 2021.

Hyatt currently ranks 3rd in Zacks. For the past seven days, the Zacks consensus estimate for 2020 earnings has remained stable. The company's shares are up 49.9% over the past six months.
Price and consensus: H.
The full list of today's Zacks # 1 Rank (Strong Buy) stocks can be found here.
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Hyatt Hotels Corporation (H): Free Stock Research Report

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