Checking In On Hotel Stocks: Room for Growth?

Key Points

• IHG, Hilton, and Hyatt stocks are up year-to-date and in the past three months due to pent-up post-pandemic demand, despite recession and inflation fears.
• All three companies have seen strong revenue growth in recent quarters.
• Recovery is also expected in business travel, with budgets seen at 98% of 2019 levels.
• IHG is in buy range after clearing a double-bottom buy point. 
• Hilton and Hyatt are forming constructive bases, and may be approaching buy points. 

There was a time, known as June 2020, when you could check into a hotel and essentially have the place to yourself. But those days are long gone, and chains InterContinental Hotels Group Plc NYSE: IGH, Hilton Worldwide Holdings Inc. NYSE: HLT and Hyatt Hotels Corp. NYSE: H are all up on a year-to-date and three-month basis. 

The story about pent-up post-pandemic demand for travel is familiar by now. But even the latest plot twist, where recession fears and inflation enters the room, doesn’t seem to be putting a damper on the desire to get out and wander around, and that's a good sign for hotel stocks.

A March 23 article from consulting firm Ernst & Young, “Hospitality industry looks strong for 2023 – despite recession fears” sums up the outlook in its title. 

Ernst & Young analyst Umar Riaz cited several trends behind the upbeat assessment: 

• Leisure demand remains strong, as does group travel. The latter refers to conventions, conferences, company meetings or any business gathering where people wear lanyards and fill up the bar at night. Riaz cited an American Express survey saying 65% of respondents expected their spending on meetings and events to increase in 2023.
• Business travel recovery: To paraphrase Mark Twain, reports of business travel’s death have been greatly exaggerated. A Morgan Stanley survey found that business travel budgets are likely to be 98% of 2019 levels. Take that, Zoom Video Communications Inc. NASDAQ: ZM. 

• China’s re-opening: Pre-pandemic, China was the world’s largest outbound travel market, with Chinese travelers taking 154 million trips and spending $255 billion. Watch for that business to return this year.
•  The rise of the digital nomad: New hybrid work models, and the rise in the gig economy, mean many employees and freelancers can travel and work from anywhere. 

• Infrastructure Investment and Jobs Act: The federal Infrastructure Investment and Jobs Act that was passed in the US in 2022 should lead to additional spending on hotels, as construction and tech workers travel to work on infrastructure projects around the country. 

InterContinental Hotels Group

The U.K.-based hotel franchisor and operator cleared a buy point above $69.63 on April 17, then added to those gains in the next session. The stock is in buy range, as it’s trading less than 2% above its buy point. 

You may not know the corporate name, but InterContinental’s brands include Holiday Inn, Staybridge Suites, Kimpton, Regent, Crowne Plaza and Candlewood Suites, among others. 

MarketBeat analyst data show a “hold” rating on the stock. Wall Street expects the company to grow earnings 18% this year and another 16% next year. 

Revenue has been growing at healthy double-digit rates since September 2021. Watch for the stock to overcome resistance above $75.20. It’s been stuck below that level since February 2021, despite several rally attempts. Shares closed at $71.01 on April 18, a gain of $0.14, or 1.57%. 

Hilton Worldwide 

Hilton is working on a cup-with-handle base with a buy point above $152.89. The current base undercut the lows of previous consolidations. That’s often a bullish signal of more gains to come, as a lower valuation attracts buyers with conviction who were waiting for a lower entry point. 

Revenue grew at triple- or double-digit rates in the past seven quarters. Sales growth decelerated in the past four quarters, but it’s important to remember that 2021 growth rates reflected easy comparisons against 2020, when hotels were ghost towns. 

MarketBeat data show a “moderate buy” rating on Hilton, with a price target of $150.73, an upside of 2.53%. 

Something would-be investors must take into account: The company reports earnings on April 26, before the open. Wall Street has pegged earnings at $1.14 a share on revenue of $2.20 billion. Both would be increases over the year-ago quarter. MarketBeat earnings data show Hilton topping net income views going back to the fourth quarter of 2021. 

Hyatt 

Hyatt’s chart shows a potentially constructive price consolidation below a March 7 high of $125.07. 

Morningstar analyst Dan Wasiolek, writing in March, expressed a bullish case for the company. 

“We expect Hyatt to expand room and revenue share in the hotel industry over the next decade, driven by a favorable next-generation traveler position supported by its House, Place, and Apple Leisure Group brands, supporting its intangible brand advantage,” he wrote. “We see the company’s room growth averaging over 5% annually over the next decade, above the 2% supply increase we estimate for the U.S. industry during this time.”

When the company reports its next quarterly results on May 4, Wall Street anticipates earnings of $0.47 per share on revenue of $1.61 billion, which would be improvements over the year-earlier quarter.

Data compiled by MarketBeat show analysts’ consensus rating of “moderate buy” with a price target of $121.57, representing an upside of 3.97%.