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3 Hotel Stocks to Keep an Eye on as Occupancy & RevPAR Improves

Hotel industry continues to show resilience on cost reduction and productivity-enhancement initiatives. MAR, CHH and PLYA have surged in the past year...

This story originally appeared on Zacks

Although the pandemic has forced alterations in consumer behaviour and spending toward travel and tourism, the U.S. hospitality industry continues to show resilience. Heightened consumer confidence owing to leniency in restrictions and ramped up vaccinations have been paving a path for higher-than-expected room blocks. Also, the fact that the hoteliers are focusing on cost reduction and productivity enhancement initiatives is lowering breakeven occupancy levels across the globe.

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Improving Trends Uplifting Spirits

Per the STR report, U.S. hotel occupancy (from Sep 12 to Sep 18, 2021) improved week over week, primarily on a rise in weekly group demand. Occupancy rates for the week ending Sep 18 came in at 63% compared with 60% in the prior week. Although an improvement in group demand created a lowering effect on average daily rate (ADR) primarily on account of lower room prices, ADR improved week over week. ADR during the week came in at $131.04 compared with $130.82 in the previous week. During this duration, RevPAR for U.S. hotels came in at $82.5 compared with $78.46 in the previous week.

Although the rate of recovery continues to be highly uneven and heavily dependent on successful vaccination rollouts, the companies are witnessing rapid return of guests in areas where rules have been eased and people feel they can travel safely. Among the top 25 markets tracked by STR, New Orleans reported highest occupancy and RevPAR growth of 7.3% and 18.2% through Sep 12 to Sep 18, 2021 compared with 2019 levels. Miami reported the highest ADR growth of 22.5% (to $166.04) compared with 2019 levels.

What Next for the Industry?

As regions prepare for recovery and owners focus on growth opportunities, emphasis on development activities is gaining momentum. Hotel owners continue to focus on maintaining a balance between maximizing hotel profitability, while driving guest satisfaction. To this end, hoteliers have continued with the practice of evolving their respective contactless experience and leveraged technologies such as mobile and web check-in as well as mobile key. Also, they have 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.

Ease in international travel is likely to act as a tailwind. Per a Reuters report, the White House issued a statement, wherein it lifted restrictions on vaccinated international travelers. This includes travelers from France, Germany, Italy, Spain, Switzerland and Greece as well as Britain, Ireland, China, India, South Africa, Iran and Brazil.

As we continue to keep a close eye on variant strains, optimism about continued global recovery remains intact on the back of increased air traffic. Although leisure transient trends are encouraging, we are fully aware that group and business transient demands need to improve significantly to reach full revenue per available room (or RevPAR) recovery.

3 Hotel Stocks to Keep an Eye on

Given the backdrop, this is an appropriate time to look at some hotel companies with strong fundamentals that stand to benefit. Here, we have highlighted three stocks that have not only performed better than the industry in the past year but also boast solid prospects. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Zacks Investment ResearchImage Source: Zacks Investment Research

Marriott International, Inc. MAR operates, franchises and licenses hotel, residential as well as timeshare properties worldwide. Shares of this Zacks Rank #3 (Hold) company have surged 65.9% in the past year compared with the industry’s 45.1% rally. The company has been benefitting from focus on expansion initiatives, digital innovation and loyalty programs. It is also witnessing improvement in occupancy and new bookings in Mainland China, as businesses are picking up. The company plans to strengthen presence outside the United States, especially in Asia, Latin America, Middle East and Africa. The Zacks Consensus Estimate for 2021 earnings has been revised 55.4% upward in the past 90 days. The consensus mark for its 2021 earnings indicates an improvement of 1,583.3% year over year.

Choice Hotels International, Inc. CHH, a hospitality company, owns and franchises hotels across the globe. Shares of this Zacks Rank #3 company have gained 50.6% in the past year. The company is benefiting from continued expansion strategies through acquisitions and franchise agreements. Choice Hotels’ Ascend portfolio has been doing solid business. Going forward, it is likely to benefit from the expansion strategies, enhancement of the mid-scale brand as well as transformation and advancement of the Comfort brands. The Zacks Consensus Estimate for its 2021 earnings has been revised 15.1% upward in the past 90 days. The consensus mark for its 2021 earnings indicates a surge of 71.6% year over year.

Playa Hotels & Resorts N.V. PLYA, together with its subsidiaries, owns, develops and operates resorts in prime beachfront locations in Mexico and the Caribbean. Shares of this Zacks Rank #3 company have gained 104.3% in the past year. Focus on direct booking channels enabled the company to ramp up occupancy faster than many third-party reliant competitors. Going forward, the company is optimistic with respect to ramped up airlift activities particularly for Europeans and Canadians. This along with pent-up demand and improved execution of offerings are likely to add to the positives. The Zacks Consensus Estimate for 2021 earnings has been revised 66.3% upward in the past 90 days. The consensus mark for its 2021 earnings indicates a rise of 59.6% year over year.

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


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