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Goldman Sachs On Lodging Stocks: What To Sell, What To Buy

Jayson Derrick

Recent industrywide consolidation in the lodging sector leaves multiple stocks trading at an "unfavorable" risk-reward profile, according to Goldman Sachs.

The Analyst

Goldman Sachs' Stephen Grambling downgraded Host Hotels and Resorts Inc (NYSE: HST) from Neutral to Sell with an unchanged $20 price target. The analyst downgraded Park Hotels & Resorts Inc (NYSE: PK) from Neutral to Sell with a price target lifted from $27 to $29.

The Thesis

From a historical point of view, lodging REITs outperform the broader S&P 500 index immediately following a recession, and performance in the mid-to-late-cycle is mixed, Grambling said in a research report. Lodging REIT stocks are trading at a premium to private market, full-service transaction valuations, which implies investors should take a more "cautious" stance, the analyst said. 

Investors hoping for continued M&A deals in the space to support upside may want to reconsider, Grambling said: full-service hotel REITs are trading in a "tight range" of 13x to 14x NTM EV/EBITDA, so any tie-up would need to include expectations for large earnings accretion to support a deal at these valuation levels, he said. 

Related Link: Evercore ISI Raises 2019 Estimates For Lodging Stocks, Says Environment Favorable For Sector

Host Hotels Downgraded

Host Hotels' stock has outperformed the broader market and gained 18 percent since the start of the second quarter of 2018 and is trading at 13.2x NTM EV/EBITDA, the analyst said. The equity is trading one turn above its five-year average, and this comes at a time when it is operating near the peak revenue per available room and operating margins, he said. The company faces greater supply growth compared to its peers, further limiting both RevPAR and EBITDA upside, according to Goldman Sachs. 

Park Hotels Downgraded

Similar to Host Hotels, Park Hotels' stock outpaced the broader market in the second quarter and is up 17 percent, the Grambling said. The stock is now trading at essentially an all-time high multiple of 12.6x NTM EV/EBITDA and a premium to the five-year average full-service hotel REIT multiple of 12.5x, he said. The stock is trading at a level where it is difficult to justify continued upside, the analyst said.

What To Buy

Investors should view lodging c-corps more favorably versus hotel REITs amid expectations for superior EBITDA growth through unit growth, higher international RevPAR and revenue from renegotiated credit card programs, Grambling said. The three Buy-rated names the analyst said investors may want to consider are: 

  • Marriott International Inc (NASDAQ: MAR), with a price target lifted from $158 to $165. 
  • Hilton Hotels Corporation Common Stock (NYSE: HLT), with a price target lifted from $99 to $100. 
  • Wyndham Hotels & Resorts Inc (NYSE: WH), with an unchanged $82 price target.

Price Action

Shares of Host Hotels and Resorts were down 2.35 percent at the close Monday, while shares of Park Hotels & Resorts were lower by 2.03 percent. 

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