It’s been just over a year since the World Health Organization declared Covid-19 to be a global pandemic. Since then, several sectors have taken the brunt of the fallout. Lockdowns and travel restrictions have devastated airlines and cruise lines. Hotels have been hammered as well, and hotel stocks plummeted early in 2020.
With vaccinations rolling out across the U.S., many hotel stocks have rebounded. Some are now reaching new highs on the expectation that travel will ramp back up in 2021. The thinking goes that pent-up demand for travel may result in massive demand for accommodations. The prospect of a post-pandemic travel bonanza has investors snapping up these hotel stocks.
However, in the first week of March 2021, the U.S. weekly hotel occupancy level was 49% (down 20.5% compared to March 2020). That’s better than the 22% occupancy rate during the worst of the pandemic, but it still has a long way to go.
And there are still big clouds on the horizon. The U.S. may be getting vaccinated, but other countries are falling behind, so international travel will be questionable for some time. Business travel may never recover to pre-pandemic levels. And then there are the additional costs for new cleanliness standards expected by guests.
Despite their popularity and the positive moves for these hotel stocks, the best of these earns a “C” rating in Portfolio Grader. Most are a “D.” Caution is definitely warranted.
- Choice Hotels International (NYSE:CHH)
- Hyatt Hotels Corporation (NYSE:H)
- Hilton Hotels Corporation (NYSE:HLT)
- InterContinental Hotels Group (NYSE:IHG)
- Marriott International (NASDAQ:MAR)
- Red Rock Resorts (NASDAQ:RRR)
- Wyndham Hotels & Resorts (NYSE:WH)
Hotel Stocks: Choice Hotels International (CHH)
In the year since the pandemic was declared, CHH stock is up nearly 70%. On Mar. 15, it closed at $112.20, an all-time high. One advantage Choice Hotels has over many competitors is its focus on drivable locations in the U.S., with 4,000 of its hotels located within one mile of a U.S. interstate highway exit. With lower-tier offerings like EconoLodge and Quality Inn, Choice Hotels may also have an advantage if consumers choose to travel but need to cut costs.
The company released its Q4 and full-year 2020 financials in February, and the picture wasn’t exactly pretty. Full-year 2020 revenue was $774.1 million, down 31% year-over-year. For the fourth quarter, the company delivered adjusted earnings per share (EPS) of 51 cents, down 45% YoY and missing analyst expectations. It also missed on earnings projections in the previous quarter.
In the fourth quarter, Choice Hotels says it reduced debt by $50 million, but it still owes $836 million. The company announced it will continue a temporary suspension of stock buybacks and dividends.
In addition, citing the fact that the “ultimate and precise impact of Covid-19 on full year 2021 is still unknown at this time,” the company declined to provide guidance for Q1 or 2021. It was two days after that earnings report that CHH stock hit its all-time high. Given the murky future and the ongoing challenges, why would anyone pay such a premium for CHH?
Hyatt Hotels (H)
In the early days of the pandemic, Hyatt Hotels shares plummeted, losing over half their value in a matter of weeks. Over the past 12 months, Hyatt stock has nearly recovered to pre-pandemic levels. So far in 2021, it’s up more than 16%.
Hyatt operates upscale and luxury properties around the world, with 67% of its rooms in the Americas. This is a company that is reliant on well-heeled consumers taking vacations — something that is by no means guaranteed any time soon.
In its most recent quarter, Hyatt saw revenue drop 66.75% to $424 million. Furthermore, it lost an adjusted $1.77 per share (down 477% YoY). The company has debt of $3.24 billion, and has sold nearly $1 billion in assets over the past two years. The company declined to provide revenue guidance for 2021.
The impact of curtailed business travel and cancelled conferences is also having a big impact on Hyatt Hotels. The company noted:
“Business transient and group demand continued to be muted. Hyatt’s full-service hotels in the Americas were negatively impacted by group cancellations.”
Investment analysts are in “wait and see” mode for Hyatt stock. Among the 18 analysts polled by the Wall Street Journal, Hyatt Hotels stock is a consensus hold. Their average 12-month price target of $74.93 has 13% downside.
Hilton Hotels (HLT)
Next on our list of hotel stocks is HLT. Hilton Hotels saw shares plunge last March and April. But the recovery began almost immediately. Over the past 12 months, HLT stock is up 169%. Two weeks ago, it closed at $127.26 — an all-time high for shares.
Given that kind of performance, you would expect that Hilton Hotels must be putting together a pretty solid recovery. However, when the company reported Q4 numbers, it missed analyst expectations for both earnings and revenue. The company reported an adjusted loss of 10 cents per share for the quarter, with revenue of $890 million. Those revenue numbers were down 62% YoY and well below the $1.03 billion analysts had been expecting. The company reported long-term debt of $10.6 billion. Stock buybacks and dividend payments — suspended last March — remain off the table.
The reason for the poor performance? Hilton blamed travel restrictions imposed once again, especially in Europe. The company noted that as of February, 227 of its hotels had still temporarily suspended operations. Given the uncertainty around Covid-19 vaccination globally, paying near-record prices for HLT stock seems like a disconnect from reality.
InterContinental Hotels (IHG)
InterContinental Hotels is confident that it is well-positioned to take full advantage of the pandemic recovery.
The company is one of the world’s largest hotel operators, with 4.2% of global hotel rooms. With chains under its umbrella like Holiday Inn and Candlewood Suites, InterContinental Hotels says its room distribution is heavily weighted toward segments that are project to recover the most quickly: 78% of its rooms are upper midscale, the vast majority are domestic and most are located outside of major urban areas (near airports and small metro towns). In addition, InterContinental Hotels says group bookings are its lowest area of exposure.
Sounds good. But, nearly half of its room are typically booked for business travel. That is a huge question mark — not just in 2021, but also in the long term. In its latest quarter, the company reported revenue down 52% to $992 million, while operating profit was down 75% YoY. That news took some of the steam out of IHG stock in February, but at this point it is still up 10% so far in 2021. And it’s still trading close to all-time highs.
Marriott Hotels (MAR)
Marriott Hotels stock has been a strong performer in 2021. So far this year, it’s up by over 14%. Since the pandemic was officially declared, it’s gained 74%. Now trading over $150, MAR stock is within reach of its all-time high, set in December 2019.
In Q4 2019, the company reported adjusted EPS of $1.51, compared to 12 cents in Q4 2020. Share repurchases and dividend payments remain suspended. What about the rest of 2021? Marriott is keeping its cards close:
“Due to the numerous uncertainties associated with Covid-19, Marriott cannot presently estimate the impact of this unprecedented situation on its future results, which is highly dependent on the severity and duration of the pandemic and its impacts, but expects that Covid-19 will continue to be material to the company’s results.”
Compare the numbers for the quarter ending December 2019 and the ones ending December 2020. Look at the company’s warning that the ongoing impact of Covid-19 on its financials are expected to be “material.” It’s difficult to understand the logic behind MAR stock’s current valuation. Why is it at the same level as a year ago? There’s certainly nothing there that would make me think of Marriott shares as being an opportunity.
Red Rock Resorts (RRR)
Red Rock Resorts operates 21 casino and entertainment properties. In its primary market of Las Vegas, the company’s properties boast 22,250 slot machines, 450 table games and 4,000 hotel rooms. During boom times, this is great. During a pandemic, not so much.
Las Vegas may face a longer post-pandemic recovery than other regions. It’s considered a luxury destination for many visitors, who may be reluctant to spend money on a vacation in tough economic conditions. It relies on visitors flying in, which requires air travel to ramp back up. And Las Vegas is also highly dependent on business travel and conferences. The Consumer Electronics Show, which went virtual in 2021, typically brought in 170,000 visitors and $169 million in spending. Vaccinations are underway, but large crowds in casinos and conventions may still be a ways off — 2023 by some estimates.
That weakness in Las Vegas was on full display when Red Rock Resorts reported full-year 2020 earnings. Revenue of $1.2 billion was down 36.3% from the $1.9 billion reported in 2019. Its net loss last year was $174.5 million. That’s an increase of over 2,500% compared to 2019’s net loss of $6.7 million.
Despite the pandemic damage and ongoing uncertainty, RRR stock is up a whopping 456% over the past 12 months. Somehow, it’s worth nearly a third more than it was after reporting 2019 full-year results. Investing in RRR at its current valuation would be just as big a gamble as sitting at one of the company’s casino slot machines.
Wyndham Hotels & Resorts (WH)
It should be pretty clear at this point that I think any hotel stocks on this list are a gamble. With most sitting at or near record valuations, revenue down, many earnings misses, and continued Covid-19 uncertainty, they are riddled with risk.
The best of the bunch may just be Wyndham Hotels & Resorts. Following a now-familiar pattern, WH stock is up about 126% in the year since the pandemic began. Like most hotel operators, Wyndham Hotels & Resorts has seen Covid-19 hammer its business. However, being the world’s largest chain of franchised hotels, with a focus on budget hotels (like the Super 8 chain), has worked in its favor.
In its latest quarter, the company beat Wall Street estimates with adjusted earnings of 7 cents per share. That marks four straight quarterly earnings beats. Wyndham Hotels & Resorts has even continued to pay a dividend, and announced it will double to 16 cents per share.
That being said, the company is declining to offer guidance for 2021. With Covid-19, there are no guarantees of business returning to normal. And without a surge of travelers, it’s difficult to imagine a scenario where WH stock can keep up this growth. Anyone thinking about buying this stock — or any hotel stocks for that matter — had better be hoping for a sizzling summer.
On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.
Louis Navellier had an unconventional start, as a grad student who accidentally built a market-beating stock system — with returns rivaling even Warren Buffett. In his latest feat, Louis discovered the “Master Key” to profiting from the biggest tech revolution of this (or any) generation.