As you might expect, hotel stocks tend to perform well in healthy economies. This is because hotels generate the vast majority of their revenue through business travel as well as tourism. And the two are closely linked. When the economy is going well, businesses are hiring and open up the travel budgets. And when employees receive the wage increases that are being shown in the monthly jobs report, they are more likely to make vacation plans that involve hotels.
Case in point, in 2017 as the unemployment rate dipped to its lowest level in 10 years, hotel revenue passed the $200 billion for the first time ever. And STR, a global data analytics firm that is the parent company of Hotel News Now, projected full-year revenue for U.S. hotels to increase 2.4% in 2019. This was with expectation for an average-daily-rate growth of 2.3%.
But like all sectors, the hotel sector has some stocks that are performing better than others. Over the last 20 years, the hotel sector has gone through a mass of consolidation. The result is that many hotel stocks have different brands. This gives consumers a good, better, best layer of choices based on their budget. For investors, the hotel stocks that offer consumers a good value at various price points are worthy of consideration because they will tend to perform well regardless of economic conditions.
And that’s an important distinction to make because currently, analysts are sour on the industry. Some of this is undoubtedly due to the ongoing travel ban in China as a result of the coronavirus. However, if the U.S. economy remains strong, hotel stocks have the opportunity to pleasantly surprise investors.
Plus, this is an industry that is reliant on new construction and renovation as a cost of doing business. This is a drag on profit in the best of times but is another reason why analysts are souring on hotel stocks.
With all of that said, now may not be the time to be jumping into hotel stocks, but here are three that merit a place on your watchlist.
Marriott International (MAR)
Marriott International (NASDAQ:MAR), now known colloquially as Marriott Bonvoy, is one of the largest hotel operators in the world. Marriott has heavy exposure in China and the Asia Pacific region. Last year, RBC Capital Markets said this was a potential growth opportunity. What a difference a year makes.
And, Marriott is in the process of aggressive expansion with plans for 1,700 new hotels by 2021. That’s a big bite out of the bottom line.
On the other hand, the stock has been resilient. In the last 12 months, investors have been treated to a gain of nearly 20%. This is despite the company having to pay a hefty fine for a data breach involving its Starwood Hotels properties. The company acquired Starwood in 2016.
Marriott is scheduled to release earnings on February 27. The 12-month price target for MAR stock is $139.50 which is a 3.73% decline from current levels. On February 14, the company’s board of directors declared a quarterly dividend of 48 cents per share. MAR stock has a dividend yield of 1.33% at the time of this writing.
Choice Hotels International (CHH)
Choice Hotels (NYSE:CHH) reports earnings on February 18. Analysts are forecasting the company to deliver earnings that are lower on a year-over-year basis. However, the company’s revenues will be up. I believe a key reason for this is the company’s investment in Everhome. This is a new extended-stay brand that will debut in select markets in 2021.
Everhome Suites will occupy the midscale segment of the company’s portfolio. The company says it will be a slightly more upscale alternative to its Woodspring Suites and Suburban Extended Stay properties.
According to data done for the company by an outside research firm, midscale hotels tended to maintain high occupancy rates during the last two economic downturns. Choice Hotels already captures approximately 20% of the U.S. extended stay market so Everhome will only serve to increase this market share.
Prior to the release of its earnings report, CHH stock was trading at $104.60. Analysts are giving the stock an average 12-month price target of $92.80. The stock is up over 30% in the last twelve months. Even with the lower price target, the stock would remain about 10% above the level it was just 12 months ago.
Hyatt Hotels (H)
Looking at what analysts are saying, Hyatt Hotels (NYSE:H) may seem like an odd choice to put on your watchlist. But the story of Hyatt is pretty simple. They have one of the best, if not the best, rewards programs in the industry. Now at first blush, I’m not that impressed by a rewards program. After all, when I can get a rewards program at my local gas station, the concept may be getting long in the tooth.
But for frequent hotel visitors, like business travelers, it’s all about the points. Or more importantly, what the points can do for them. And through its World of Hyatt reward program, Hyatt customers can get many perks that offset the higher cost of staying at some of the Hyatt properties.
Hyatt is scheduled to report earnings on February 19. It is expected to report lower year-over-year earnings, but higher revenue. The stock is up nearly 20% over the last 12 months. Analysts have a $66.21 12-month price target which would be a drop of over 27% from current levels.