The recession offered no safe havens for hotels. Like other segments of the hospitality industry, hotel stocks were badly battered as more business and leisure travelers stayed home and innkeepers’ rooms remained empty. Here’s how bad it was: between 2008 and 2009, the industry’s earnings took nearly a 39% hit.
Now, however, the slow economic recovery is starting to help the embattled sector bounce back. Indeed, the bottom line of an average U.S. hotel jumped by nearly 10% last year, according to new data from industry tracking firm PKF Hospitality Research.
At the same time, income growth has been uneven across the sector. PKF researchers found that upscale and luxury hotels with an average daily room rate (ADR) of more than $200 reported a whopping 33% gain in profit, while chains with ADRs below $100 experienced a slim 0.3% increase.
That’s because while luxury hotels comprise only about 2.5% of all hotel rooms, they account for more than 5.5% of total revenue. PKF says U.S. hotels should be able to increase their total revenue by nearly 7% in 2011, if they keep operating costs under control.
Here are three stocks that are hot and three that are not:
Hot Hotel Stocks
Starwood Hotels & Resorts (NYSE: HOT). No pun intended but HOT is, well, hot. Because Starwood primarily operates luxury brands such as St. Regis, W, Westin, Le Meridien, Sheraton, Four Points and Element, it is well positioned to continue to beef up its margins with premium rates. At about $60, the stock is trading more than 50% over its 52-week low of $39.60 last July.
Hyatt Hotels (NYSE: H). Hyatt’s luxury and business premium brands have lodged well-heeled travelers for 50 years and include Hyatt Regency and Grand Hyatt. At about $45, it is trading 32% significantly higher than its low of $34.19 last July.
Wyndham Worldwide (NYSE: WYN). Unlike Starwood and Hyatt, Wyndham has more diversification in price tiers, with options in the upscale, midscale and budget classes. Key brands range from Wyndham Hotels and Resorts to Super 8 and Days Inn. Besides the luxury travel bump, Wyndham has been able to more aggressively price its budget rooms. At around $35, the stock has risen nearly 80% since its 52-week low of $19.44 last July.
Hotel Stocks That Are Not
Home Inns & Hotels Management (NASDAQ: HMIN). Yes, top China hotel chain HMIN rose nearly 9% on Friday on news of its deal to acquire the Motel 168 chain for $470 million. But its occupancy rate was only 85.1% in the first quarter of 2011, compared with 90.5% in the same period in 2010. More significant, the ADR fell to $140 in the first quarter, down from $144 in the same quarter last year. The fact that $305 million of the Motel 168 purchase is in cash is also a consideration. At about $40, it’s trading 26% over its 52-week low of $32.05 in February 2011. Though this emerging market play is not an apples-to-apples comparison with U.S. chains, it is suffering some of the same occupancy problems and should be avoided.
Choice Hotels International (NYSE: CHH). Choice focuses its lodging franchises on midscale and budget brands such as Comfort Inn, Comfort Suites, Quality, Clarion, Sleep Inn, Econo Lodge and Rodeway Inn. Although it has boasted strong occupancy increases over the past year, room rates should be more aggressively priced. At $35.75, it’s trading 22% over its 52-week low of $29.25 last July.
Marcus Corporation (NYSE: MCS). Marcus should boost its hotel income by $8 million in 2011. The lodging and resorts unit owns or manages 18 hotels, resorts and other properties in nine states. But here’s the problem: Marcus also owns and manages 55 movie theaters, and weak box office and concession sales dragged down earnings last quarter. At $10.50, the stock is 22% above its low of $8.60 last July.
As of this writing, Susan J. Aluise did not hold a position in any of the stocks named here.
