Hotel stocks are down, but they are not out for the count.
The Dow Jones U.S. Hotels Index has risen over 68% from its March bottom this year and finished October up a slight 0.2%, while the broader Dow Jones Industrial Average fell 4.6% for the month.
Despite being part of the hard-hit tourism sector and lumped in with the reopening trade, hotels — particularly the largest U.S. chains — have held up surprisingly well since the summer. For example, hotel stocks have certainly done better than airline shares, which have fallen a combined 14% during the last week of October.
Until there is a vaccine for the Covid-19 pandemic, there can be no sure things for any of the travel sectors. But with the holidays approaching, and the vaccine expected in the first half of 2021, these four hotel stocks could prove to be a nice addition to any portfolio.
- Hilton Hotels & Resorts (NYSE:HLT)
- Marriott International (NASDAQ:MAR)
- Hyatt Hotels (NYSE:H)
- Choice Hotels (NYSE:CHH)
Hotel Stocks to Buy: Hilton Hotels & Resorts (HLT)
While HLT stock has bounced 39% from its March low, it remains 22% below its 52-week high at about $90 a share.
At its current price, Hilton stock looks like a buy unlike other hotel stocks. While the hotel chain has suffered a downturn this year with an occupancy rate of 39% through the first six months of the year, Hilton continues to be in decent financial shape.
In the first half of 2020, revenue was down 47% at nearly $2.5 billion. However, net losses were only $412 million. Based on adjusted earnings, Hilton remained profitable with $38 million in net income. Much of the company’s resilience is due to the fact that it sold direct ownership of many of its properties a few years ago. That has left it in a position where it can weather the pandemic — and eventually rebound when travel levels return.
And Hilton is well-positioned to rebound. The chain has 6,200 properties in 118 countries. It has also built a sizable loyalty program with its popular “Hilton Honors” rewards, which boasts more than 100 million members worldwide. With a vaccine on the horizon, the company could start reporting a revenue rally as soon as the first half of 2021.
Until then, Hilton remains cash flow positive with trailing-12-month free cash flow generation of $1.5 billion on revenue of $7.2 billion. Analysts remain bullish, with a median price target of $92 a share and a high estimate of $110. That median already represents an increase from the current price — and that’s still without a vaccine available yet.
Marriott International (MAR)
Marriott is another one of the hotel stocks that is in a great position to thrive, once the pandemic is behind us.
The company is taking any and all steps needed to right the ship during this storm. Marriott recently announced that it has laid off 673 workers, “or around 17% of its workforce, by late October.” These layoffs come after the company furloughed around two-thirds of its corporate staff in April.
Despite this, though, Marriott is continuing to open new properties around the world as planned, preparing for resumed travel. In October, the company opened a new hotel on Batam Island in Indonesia. Further, Marriott recently signed an agreement with a real estate developer to open 11 new Fairfield properties in Japan by 2022.
Marriott has also taken steps to compete against Airbnb with its new Marriott Homes & Villas, a luxury rental service that provides customers with a private property rather than a hotel room. Launched shortly before the pandemic, the venture has proven successful. Bookings were up by 700% since the summer of 2019. Revenue was up more than 800%. Since the launch, the number of properties on Marriott’s new platform has grown fivefold, “from about 2,000 to more than 10,000” listings.
MAR stock is up 60% from its April doldrums, but even at over $95 a share, it remains well off its 52-week high of $153.39. Analysts predict a median price target of $104 for Marriott, suggesting over 9% upside for the stock.
Hyatt Hotels (H)
Believe it or not, Hyatt Hotels beat analyst estimates when it reported its most recent quarter in late August, making it one of the more attractive hotel stocks.
The global hotel chain generated $250 million of revenue in Q2, topping analyst calls for $180 million. That earnings beat is especially impressive given the context — revenue per available room at Hyatt cratered almost 90% year-over-year.
Since then, things have been looking up for Hyatt and its shareholders. Occupancy rates in China — where the company has substantial business — were at 65% in September. The company has also reported $1.46 billion in cash and cash equivalents on hand moving forward into the end of the year.
What’s more, Hyatt has been streamlining its business to ensure it is prepared for recovery post-pandemic. For instance, the company shed 1,300 employees in May.
These efforts have helped H stock jump over 50% since March to a little over $57 a share. That’s an impressive rebound and good news for shareholders. However, the hotel stock still remains 65% below its 52-week high of just under $95. Analysts currently have a hold rating on the stock, and while the median target sits at $52, some see the share price reaching as high as $63 a share in the coming 12 months.
Choice Hotels (CHH)
Choice Hotels has withstood the carnage this year better than most hotel stocks. Currently, CHH stock is only down around 13% for the year. The company has managed to survive by cutting operating expenses 32% at the worst of the pandemic.
Today, nearly all of its 5,917 properties in the States are open again, as lockdown measures have eased. Additionally, “96% of its roughly 1,200 international hotels” are now open. Naturally, being open for business has helped to keep the company’s stock buoyant. Choice Hotels’ share price has increased 68% since March to over $89 today.
Choice Hotels also has benefitted from the fact that it operates with a franchise business model. The company doesn’t own its hotel properties. Rather, it licenses them to the franchisees or franchise owners, who use the Choice Hotels branding and systems for a fee. What’s more, the franchisees must run their properties in accordance with CHH standards.
What does this model mean for Choice Hotels? Lower capital expenditures due to the lack of assets, more stable earnings, and significant free cash flow. At the start of Q3, the company had “$725 million in cash and borrowing capacity through its revolving credit facility.”
While the stock is now trading right around its median target of $88, currently analysts have a high price target of $112 on CHH stock.
On the date of publication, Joel Baglole did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Joel Baglole has been a business journalist for 20 years. He spent five years as a staff reporter at The Wall Street Journal, and has also written for The Washington Post and Toronto Star newspapers, as well as financial websites such as The Motley Fool and Investopedia.