The Zacks Hotels and Motels industry is benefiting from improving demand, RevPAR and ADR. People are feeling more optimistic and confident about the prospect of traveling again. To capitalize on the sentiment, hotel operators are focusing on several initiatives to meet their customers’ needs as they return to hotels. The industry exhibited resilience on the back of cost-saving initiatives and digital enhancements. Hotel owners continue to maintain a balance between maximizing hotel profitability and driving guest satisfaction. The industry players, namely Marriott International, Inc. MAR, InterContinental Hotels Group PLC IHG and Playa Hotels & Resorts N.V. PLYA, have been gaining from the prevailing scenario.
The Zacks Hotels and Motels industry comprises companies that own, lease, manage, develop and franchise hotels. Some vacation ownership and exchange companies are also part of the industry. Several industry participants own, develop and operate resorts. Some players develop lodges, villages and mobile accommodations, including modular, skid-mounted accommodations and central amenities that provide long-term and temporary workforce accommodations. Some industry players develop, market, sell and manage vacation ownership and associated products. Few hoteliers provide studios, one-bedroom suites and accommodations to mid-market business and personal travelers as well.
4 Trends Shaping the Future of Hotels & Motels Industry
Strong RevPAR & ADR Driving Growth: The industry is benefiting from robust ADR and RevPAR. Per STR, ADR and RevPAR for the week ended May 6 came in at $157.62 and $102.74, up 6.4% and 8.4%, respectively, compared with the same period’s levels in 2022. Occupancy for the week ended May 6 came in at 65.2%. The uptrend was driven by a solid leisure demand in the United States. Easing COVID-19 restrictions and improving business activity added to the upside. Hotel demands in 2023 are likely to be driven by leisure travelers from Europe and Asia-Pacific.
Digitalization to Drive Growth: Hotel owners continue to focus on maintaining a balance between maximizing hotel profitability and driving guest satisfaction. To this end, hoteliers have leveraged technologies such as mobile and web check-in and mobile key. The hoteliers also 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. This and the emphasis on pricing optimization and merchandising capabilities will likely help hoteliers capture additional market share.
Initiatives to Attract Customers: Hoteliers are committed to comprehensive processes for cleaning, disinfection and infectious disease prevention. They have instated a trained hygiene and well-being leader, who is responsible for a clean and safe environment for staff and guests. The companies have been undertaking efforts to enhance the contactless experience and leveraging technologies such as mobile and web check-in and mobile key. These players have resorted to streamlining operations with efficient management levels, the benefits of which are likely to stay even after the pandemic fades out.
High Costs & High Inflation Remain a Woe: Higher costs are a concern for industry participants. Concerns about a global slowdown and a possible recession loom over the stock market. A high inflation is likely to curb consumer spending, which i will hurt the industry.
Zacks Industry Rank Indicates Bright Prospects
The Zacks Hotels and Motels industry is grouped within the broader sector.
The group's Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates bright near-term prospects. The Zacks Hotels and Motels industry currently carries a Zacks Industry Rank #76, which places it in the top 30% of the 250 Zacks industries. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.
The industry's position in the top 50% of the Zacks-ranked industries is the result of a positive earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are gradually gaining confidence in this group's earnings growth potential. Since Jan 31, 2023, the industry's earnings estimates for 2023 have increased 7.6%.
Before we present a few stocks that you may want to scrutinize
Industry Outperforms S&P 500
The Zacks Hotels and Motels industry has outperformed the Zacks S&P 500 composite and its own sector in the past year.
Over this period, the industry increased 7.7% against the sector's decline of 1.1%. The Zacks S&P 500 composite has increased 3%.
Hotels & Motels Industry's Valuation
On the basis of the forward 12-month EV/EBITDA, which is a commonly-used multiple for valuing Hotels and Motels stocks, the industry is currently trading at 13.69X compared with the S&P 500’s 11.1X. It is also above the sector’s trailing 12-month EV/EBITDA ratio of 8.69X.
Over the last five years, the industry has traded as high as 23.79X and as low as 8.69X, with the median being at 13.69X, as the chart below shows.
3 Hotels & Motels Stocks to Watch Out For
Marriott: The company is benefiting from its focus on expansion initiatives, digital innovation and the loyalty program. Marriott is gaining from the reopening of international borders and leniency in travel restrictions. This is boosting leisure demand and calling for business and cross-border travel improvements. The company is consistently trying to expand its worldwide presence and capitalize on the demand for hotels in the international markets.
Marriott currently carries a Zacks Rank #1 (Strong Buy). In the past 30 days, the Zacks Consensus Estimate for 2023 earnings has been revised upward by 7.5%. The Zacks Consensus Estimate for MAR 2023 earnings per share suggests growth of 24.5% from the year-ago period. MAR shares have gained 7.3% in the past year. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Price and Consensus: MAR
InterContinental Hotels Group: InterContinental Hotels has been gaining from robust leisure travel demand and improvement in RevPAR. Robust group bookings and international trips continue to drive the company’s performance.
InterContinental Hotels Group currently carries a Zacks Rank #2 (Buy). In the past 30 days, the Zacks Consensus Estimate for 2023 earnings has been revised upward by 3.5%. The Zacks Consensus Estimate for InterContinental Hotels 2023 earnings per share suggests growth of 7.5% from the year-ago period. IHG's shares have gained 10.7% in the past year.
Price and Consensus: IHG
Playa Hotels & Resorts: Playa Hotels & Resorts, together with its subsidiaries, owns, develops and operates resorts in prime beachfront locations in Mexico and the Caribbean. The company is benefiting from an increase in net package RevPAR and witnessing strong demand across its portfolio.
Playa Hotels & Resorts currently carries a Zacks Rank #2. In the past 7 days, the Zacks Consensus Estimate for 2023 earnings has been revised upward by 1.8%. The Zacks Consensus Estimate for Playa Hotels & Resorts 2023 earnings per share suggests growth of 14% from the year-ago period. PLYA's shares have gained 2.8% in the past year.
Price and Consensus: PLYA
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