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Hotel Stocks - Best Hotel Stocks Invest In

Posted on Monday, December 9th, 2019 by Matthew Sweeney

Hotel Stocks - Best Hotel Stocks Invest In

The world is becoming increasingly connected, and there’s no better proof of this than the hotel industry. Business travel and tourism fuel the global hotel industry, and there’s no sign of this growth slowing down. If you are interested in investing in the hotel industry, a review of the top hotel companies is a great place to start.

Top Hotel Companies in the US

The hotel industry is a unique sector of the market. In order to understand the industry and find the best hotel stocks, it’s important to know about some of the fundamental opportunities and risks associated with the hotel industry.

Hotel Industry

The hotel industry is an important part of the hospitality industry. In 2018, the hotel industry had an annual revenue of $147 billion, but this number is expected to grow to $211 billion by 2026. Hotel companies have the ability to turn a large profit, but only if managed correctly. When poorly managed, hotels can bleed profits. Many of the biggest hotels have an incredibly large number of locations due to franchise agreements.

Some of the major metrics to be aware of in the hotel industry include ratios that can be found in other industries as well, such as liquidity ratios, financial leverage ratios, and profitability ratios. But there are also some metrics that may be unknown to many investors. These metrics include the following:

Average Daily Rate - This is one of the key performance indicators of the hotel industry.

Revenue per Available Room - Another important metric in the hotel industry, Revenue per Available Room is calculated by multiplying the average daily room rate by the occupancy rate. This can be used to help a hotel anticipate demand and calculate appropriate margins.

Revenue per occupied room - This tells a hotel how much money it is earning from guests. It can be calculated for any time period—daily, quarterly, annually, etc. This number includes any services or sales a guest may purchase and is calculated by dividing total revenue by occupied rooms.

Another important thing to keep in mind when looking at hotel stocks is that hotels have two major areas where they make their money: business travel and tourism. This means that the areas with large amounts of business travel and tourism are ideal locations for hotels. Otherwise, hotels may struggle to make a profit. It also means that the hotel industry is highly correlated to the general economy, since vacations and business travel are two major areas where people cut back during economic recessions.

Headquartered in Bethesda, Maryland, Marriott is one of the largest hotel operators in the world. Marriott began as a root beer stand during the Great Depression and now has locations in 130 different countries. Marriott company has many different hotel brands, including Ritz-Carlton, Westin, and Courtyard. In 2016, Marriott also acquired Starwood Hotels and Resorts for $13 billion. The acquisition helped improve Marriott’s market capitalization, especially in China and Europe.

Marriott pays a dividend, but compared to some others in the industry, its 2% dividend yield isn’t terribly high. Instead, Marriott chooses to divert much of its cash flow into improving its existing hotel properties and purchasing new properties. This is part of the reason that Marriott has been able to continuously open new hotels. As of the end of the third quarter of 2019, Marriott has 3,000 hotels in its pipeline.

Marriott’s third quarter had both some good and some bad results. This is not terribly surprising since the hotel industry as a whole did not see much growth in the third quarter. Marriott’s revenue per available room increased by 1.5%, but the company’s adjusted net income decreased by 18% compared to the same quarter of the previous year.

Hilton Worldwide Holdings is a massive hotel chain with many different types of hotel offerings. Hilton’s 14 different brands include more high-end luxurious offerings, as well as mid-priced options, and even extended-stay suites. In 2018, Hilton launched a new brand called Tru. The Tru brand is a midscale chain that’s targeted at millennials. Since Hilton’s offerings are typically more upscale, this new offering is considered to be quite a change.

As of the end of the third quarter of 2019, Hilton approved 25,200 new rooms to be added to its development pipeline, which brings the total to 379,000 rooms across all its new hotels and properties. This is in addition to the 17,400 new rooms that Hilton opened in the third quarter of 2019.

Hilton saw a stronger third quarter than many other brands in the hotel sector. The company saw an increase in both its total revenue and net income compared to the third quarter of 2018. Hilton’s management has said that it expects to see strong growth in the fourth quarter of 2019 and anticipates this growth to continue into 2020. This is partly because Hilton expects to profit from a few projects that will be completed at the end of 2019 and beginning of 2020.

Wyndham Hotels and Resorts is the world’s largest hotel franchise operator, with properties in over 80 different countries. Wyndham also owns many other well-known brands, including La Quinta, Ramada, Days Inn, and Super 8. Due to Wyndham’s global presence, it’s likely to benefit from the growing middle class in China and India.

Wyndham has a dividend yield of about 2%. For those focused on a dividend investing strategy, this isn’t a terribly high dividend. Instead, Wyndham chooses to invest the majority of its cash flow back into the company through acquisitions of more properties. Though dividends have their benefits, a company may provide its investors with a larger overall return by reinvesting its cash back into the company. This can help grow the company—and therefore the stock price.

Even though the hotel sector as a whole did not have a particularly strong third quarter, Wyndham saw strong growth. This is due in large part to the company’s development pipeline, which is largely international and new construction. Specifically, 56% of Wyndham’s pipeline is international and 74% is new construction. Though the company’s third-quarter revenue and net income decreased, this is not a major area of concern, since these lower numbers were caused largely by lower cost-reimbursement revenues, expenses related to some contract terminations, and some items that were transaction-related.

Hyatt Hotels Corporation is another huge player in the hotel industry. As of September 30, 2019, Hyatt had about 875 properties spanning 60 different countries. The company is made up of four different segments. These four segments include hotel owning and leasing, management and franchising in America, management and franchising in Asia, and management and franchising in the EAME/SW (Europe, Africa, the Middle East, and parts of southwest Asia).

Like many other hotel stocks, Hyatt saw mixed results for the third quarter of 2019. Hyatt’s adjusted net income increased by 5.4% compared to the same quarter of the previous year but the company’s adjusted earnings before tax, depreciation, and amortization (EBITDA) decreased by 7.3%. EBITDA is a measure used to evaluate the operating performance of a company. The company’s revenue per available room remained the same in the third quarter of 2019.

Hyatt’s management has said that the reason for the increased revenue per available room was due to the timing of some Jewish holidays, while some lost revenue was caused by the political turmoil occurring in Hong Kong. The president and CEO of Hyatt, Mark Hoplamazian, said on the earnings call that Hyatt expects to see a strong fourth quarter, even though there are various international issues that could negatively impact the company.

Choice Hotels has many different franchising brands, including Comfort Inn, Comfort Suites, Quality, Clarion, and Cambria Suites. Based in Rockville, Maryland, the company has an international presence, but not nearly to the extent as many of its competitors. Though this means that Choice Hotels has fewer opportunities to take advantage of growing international markets, it is also slightly less affected by various international events than some other major hotel companies.

One way that Choice Hotels has tried to stand out from competitors is by embracing technology. In early 2019, Choice Hotels announced that the company would be partnering with Google so that customers could use their voice-enabled Google Assistant in order to search and book a room at a Choice Hotel.

Choice Hotels had a surprisingly good third quarter. The reason for this positive third quarter was largely due to the work Choice Hotels has done to improve its Comfort brand, which is the company’s flagship brand. Choice Hotels has recently been working on renovating more of its Comfort brand hotels in the hope of increasing the amount of business travel it receives. Choice Hotels has also been working on increasing the luxurious Cambria brand in the United States.

Hotel ETF

The hospitality industry—especially the hotel industry—is a fascinating sector of the market. If you are interested in adding some hotel companies to your portfolio, one thing to consider is a hotel ETF. An exchange-traded fund (ETF) is traded on a stock exchange but is made up of other securities that are managed by industry analysts. One of the benefits of a hotel ETF is that instead of having to pick which hotel stock to buy, you can make a single investment and have multiple hotel stocks in your portfolio.

Another option is a REIT ETF. A real estate investment trust (REIT) is made up of hotels and motels, and allows investors to have exposure to income-producing properties placed in a trust. The following are some of the top three hotel REIT ETFs.

  • Hospitality Properties Trust (HPT)
  • Summit Hotel Properties, Inc. (INN)
  • Condor Hospitality Trust Inc. (CDOR)

Should I Invest in Hotel Stocks?

The hotel industry may not be as flashy as some other areas for investors. Hotels are rarely the biggest stock gainers, best growth stocks, or the most active stocks on Wall Street, but that doesn’t mean that it’s not worth investing in them. There’s a lot of momentum in the hotel industry—and that means there is potential for stock returns. When investing in the hotel industry, be aware that the hotel industry is cyclical, since its growth has a high correlation with that of the overall stock market. This means that market volatility caused by analyst reports and the latest news is likely to cause volatility in the hotel industry as well. For example, during the financial crisis of 2008, the hotel industry took a major hit. But as part of a diversified portfolio, hotel stocks can be a great investment.

Companies Mentioned in This Article

CompanyCurrent PricePrice ChangeDividend YieldP/E RatioConsensus RatingConsensus Price Target
Marriott International (MAR)$141.02flat1.36%36.53Hold$139.50
Hilton Hotels (HLT)$108.49flat0.55%34.12Buy$102.60
Wyndham Destinations (WYND)$51.48flat3.50%10.75Buy$60.29
Hyatt Hotels (H)$84.20flat0.90%18.34Hold$69.43
Choice Hotels International (CHH)$99.36flat0.91%26.22Hold$90.50
Hospitality Properties Trust (SVC)$23.06flat9.37%-13.25Buy$28.50
Summit Hotel Properties (INN)$11.67flat6.17%19.13Buy$13.50
Condor Hospitality Trust (CDOR)$11.07flat7.05%N/AHold$11.00

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