U.S. Markets closed

RevPAR & ADR Growth Bode Well for Hotels & Motels Industry

Zacks Equity Research

The Zacks Hotels and Motels industry includes companies that  own, lease, manage, develop, and franchise hotels and resorts. Some companies in the industry also operate as vacation ownership and exchange.

Let’s take a look at the industry’s three major themes:

  • The Hotels and Motels industry is likely to be aided by growing demand that boosts both occupancy and average daily rate (ADR). Per a STR (formerly known as Smith Travel Research) report, in fourth-quarter 2018, the U.S. hotel industry reported revenue per available room (RevPAR) and ADR growth of 2.4% and 2%, respectively. The industry witnessed rise in occupancy rate across all sectors, from luxury to economy. The momentum is likely to continue in 2019 but at a slower rate. That’s because most of the hoteliers in the United States have been witnessing slowing revenue per available room (RevPAR) trends of late owing to muted international visits.
  • The industry participants have been benefiting from several factors like a strong domestic economy, higher income, increased consumer confidence and a strong labor market. As people are steadfast on spending time with loved ones and keep looking for unique experiences at all price points, demand for offerings is on the rise.
  • However, higher costs continue to be a concern for the industry. With an improvement in the economy and drop in unemployment levels, industry players are struggling to control their largest operating expense — labor costs. Rising salaries, wages and benefits have been adding to labor costs.

Zacks Industry Rank Indicates Bright Prospects

The Zacks Hotels and Motels industry is grouped within the broader Consumer Discretionary Sector.

The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates encouraging near-term prospects. The Zacks Hotels and Motels industry currently carries a Zacks Industry Rank #108, which places it in the top 43% of 255 Zacks industries. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.

Before we present a few stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock-market performance and valuation picture.

Industry Underperforms S&P 500 & Sector

The Zacks Hotels and Motels industry has underperformed its own sector and the Zacks S&P 500 composite over the past year.

Over this period, the industry has declined 20.7% compared with the sector’s decline of 2.7%. The Zacks S&P 500 composite however rallied 4.5% in the said time frame.

One-Year Price Performance

Hotels & Motels Industry’s Valuation

On the basis of the forward 12-month P/E ratio, which is a commonly used multiple for valuing Hotels and Motels stocks, the industry is currently trading at 19.94X compared with the S&P 500’s 16.9X. It is also above the sector’s forward 12-month P/E ratio of 18.21X.

Over the last five years, the industry has traded as high as 29.52X, as low as 16.95X and at the median of 23.82X, as the chart below shows.

Bottom Line

Rise in occupancy rate and commercial transient demand is likely to aid the industry’s growth in 2019. Further, we note that rising employment, higher real income and increased household net worth reinforced consumer confidence and sentiment. This resulted in a steady rise in business and leisure travel, and higher transaction volumes, which are likely to continue. However, limited labor and higher costs will keep denting the financials.

Currently, there is only one stock that sports a Zacks Rank #1 (Strong Buy) and is cashing in on the positive industry fundamentals. You can see the complete list of today’s Zacks #1 Rank stocks here.

Belmond Ltd. (BEL): The company is engaged in the hotel and travel business. Earnings for 2019 are likely to witness growth of 20%. Further, the company’s earnings surpassed the Zacks Consensus Estimate in the trailing two quarters, with the average being 28.6%.

Price and Consensus: BEL

Investors may hold on to the following stocks, which currently carry a Zacks Rank #3 (Hold) and have solid earnings growth prospects.

Hyatt Hotels Corp. (H): The company, which develops, owns, operates, manages, franchises, licenses, or provides services to hotels, resorts, residential, and other properties, has a Zacks Rank #3. Its earnings surpassed the consensus estimate in the preceding four quarters, with the average beat being 29.2%. Earnings for 2019 are likely to witness growth of 24.5%.

Price and Consensus: H

Hilton Worldwide Holdings Inc. (HLT): The company owns, leases, manages, develops, and franchises hotels and resorts. Currently, the company has a Zacks Rank #3. Earnings beat the consensus estimate in each of the trailing four quarters, with the average being 8.3%. Earnings for 2019 are likely to witness growth of 14.4%.

Price and Consensus: HLT

Marriott International, Inc. (MAR): The company operates, franchises, and licenses hotel, residential, and timeshare properties worldwide. Earnings surpassed the consensus estimate in the preceding four quarters, with the average being 19.1%. The company’s long-term earnings are likely to witness growth of 11.6%.

Price and Consensus: MAR

Zacks' Top 10 Stocks for 2019

In addition to the stocks discussed above, wouldn't you like to know about our 10 finest buy-and-holds for the year?

From more than 4,000 companies covered by the Zacks Rank, these 10 were picked by a process that consistently beats the market. Even during 2018 while the market dropped -5.2%, our Top 10s were up well into double-digits. And during bullish 2012 – 2017, they soared far above the market's +126.3%, reaching +181.9%.

This year, the portfolio features a player that thrives on volatility, an AI comer, and a dynamic tech company that helps doctors deliver better patient outcomes at lower costs.

See Stocks Today >>

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
To read this article on Zacks.com click here.
Zacks Investment Research