Zacks Equity Research discusses Marriott International, Inc. MAR, Hilton Worldwide Holdings Inc. HLT and InterContinental Hotels Group PLC IHG.

Industry: Hotels & Motels

The Zacks Hotels and Motels industry benefits from increasing demand, RevPAR and ADR. The industry participants focus on expansion efforts, hotel conversions, strategic partnerships and loyalty programs. The industry has exhibited resilience behind cost-saving initiatives and digital enhancements.

Hotel owners continue to focus on maintaining a balance between maximizing hotel profitability and driving guest satisfaction. The industry players, namely Marriott International, Inc., Hilton Worldwide Holdings Inc. and InterContinental Hotels Group PLC, have been gaining from the prevailing scenario.

Industry Description

The Zacks Hotels and Motels industry comprises companies that own, lease, manage, develop and franchise hotels. Some vacation ownership and exchange companies are also part of the industry. Several industry participants own, develop 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.

4 Trends Shaping the Future of the Hotels & Motels Industry

Strong RevPAR & ADR Driving Growth: The industry benefits from robust ADR and RevPAR. Per STR, ADR and RevPAR for the week ended July 22 came in at $161.65 and $117.91, up 0.5% and 1.5%, respectively, compared with the same period’s levels in 2022. Occupancy for the week ended May 6 came in at 72.9%, up 0.5% year over year. Occupancy for the week ending Jul 22 was the highest level since the week of Aug 10, 2019. The uptrend was driven by a solid leisure demand in the United States. Hotel demands in 2023 are likely to be driven by leisure travelers from Europe and Asia-Pacific.

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 have also increased the use of these 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 an emphasis on pricing optimization and merchandising capabilities are likely to help hoteliers capture additional market share.

Initiatives to Attract Customers: Firstly, hoteliers are committed to comprehensive cleaning, disinfection and infectious disease prevention. They have instated a trained hygiene and well-being leader responsible for a clean and safe environment for staff and guests. Secondly, the companies have tried enhancing the contactless experience through mobile and web check-in and mobile key technologies.

High Costs & High Inflation Remain a Woe: Higher costs remain a concern for the industry participants. Worries about a global slowdown and a possible recession loom large over the stock market. High inflation is likely to curb consumer spending, which will hurt the industry.

Zacks Industry Rank Indicates Bright 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 bright near-term prospects. The Zacks Hotels and Motels industry currently carries a Zacks Industry Rank #106, which places it in the top 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 top 50% of the Zacks-ranked industries is the result of a positive earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are gradually gaining confidence in this group’s earnings growth potential. Since Mar 31, 2023, the industry’s earnings estimates for 2023 have increased 11.6%.

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 Outperforms the S&P 500

The Zacks Hotels and Motels industry has outperformed the Zacks S&P 500 composite and its sector in the past year.

Over this period, the industry increased 20.7% compared with the sector’s increase of 7%. Meanwhile, the Zacks S&P 500 composite has increased 11.5%.

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 11.59X compared with the S&P 500’s 11.64X. It is also below the sector’s trailing 12-month EV/EBITDA ratio of 8.68X.

Over the last five years, the industry has traded as high as 23.79X and as low as 8.69X, with the median being at 13.60X.

3 Hotels & Motels Stocks to Watch Out For

Marriott: The company is benefiting from its focus on expansion initiatives, digital innovation and the loyalty program. Marriott is gaining from reopening international borders and leniency in travel restrictions resulting in robust leisure demand along with business and cross-border travel improvements. The company is consistently trying to expand its worldwide presence and capitalize on the demand for hotels in the international markets.

Marriott currently carries a Zacks Rank #2 (Buy). In the past 30 days, the Zacks Consensus Estimate for 2023 earnings has been revised upward by 0.2%. The Zacks Consensus Estimate for MAR 2023 earnings per share suggests growth of 26% from the year-ago period. MAR shares have gained 25.1% in the past year. You can see the complete list of today’s Zacks #1 Rank stocks here.

Hilton:The company is benefiting from its focus on unit expansion, hotel conversions, strategic partnerships and loyalty programs. Global recovery from the COVID-19 pandemic and the upward trend in travel and tourism have contributed to its growth momentum. The company expects positive development trends to continue on the back of new development and conversion opportunities.

HLT currently carries a Zacks Rank #2. In the past seven days, the Zacks Consensus Estimate for 2023 earnings has been revised upward by 2.2%. The Zacks Consensus Estimate for Hilton 2023 earnings per share suggests growth of 22.3% from the year-ago period. HLT’s shares have gained 19.8% in the past year.

Playa Hotels & Resorts: Playa Hotels & Resorts, together with its subsidiaries, owns, develops and operates resorts in prime beachfront locations in Mexico and the Caribbean. The company is benefiting from increased net package RevPAR and witnessing strong demand across its portfolio.

Playa Hotels & Resorts currently carries a Zacks Rank #2. The Zacks Consensus Estimate for Playa Hotels & Resorts 2023 earnings per share suggests growth of 6% from the year-ago period. PLYA’s shares have gained 20.3% in the past year.

Marriott International, Inc. (MAR): Free Stock Analysis Report

Intercontinental Hotels Group (IHG): Free Stock Analysis Report

Hilton Worldwide Holdings Inc. (HLT): Free Stock Analysis Report

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