Consumers are still eager to splash out on travel but their demands are changing. That creates an opportunity in hotel stocks, says Melius Research who also exercise caution over some online travel platforms.
Melius analysts Conor Cunningham and Daragh Regan say consumers are prioritizing urban and international markets over domestic and rural locations. They also note spending is still shifting from goods to experiences, which is a positive for travel stocks.
“Hotels have demonstrated the ability to grow consistently, regardless of macro environment trends. At the same time, the asset-light / fee-based model by the hotel brands is a more resilient revenue stream, and thus more defensive relative to other travel sectors,” Cunningham and Regan wrote.
While the U.S. bank panic earlier this year raised some questions about financing for further hotel room growth, the Melius analysts expect international expansion to be healthy. They also see a potential boost from a return to corporate travel.
They assigned Buy ratings to
Hilton Worldwide Holdings
(ticker: HLT),
Hyatt Hotels
(H) and
Marriott International
(MAR).
Hilton was given a target price of $182, compared with Monday’s close of $155.48. They set their target for Hyatt at $148, from its current price of $126.75 and Marriott at $230 from a premarket trading price of $202.80 on Tuesday.
While the three hotel stocks are all up more than 20% so far this year, the Melius analysts argue their average forward price-to-earnings multiples of around 22 times is below the 23 times average before the Covid-19 pandemic, even as the S
&P 500’s
average multiple has risen.
However, Cunningham and Regan are more cautious about online travel stocks.
“Long-term, online travel should benefit from the secular growth in travel, but near-term comps are difficult, particularly in vacation rentals as there is a shift back to urban markets and a further increase in return to office,” they wrote.
Their favored stock in the online travel sector is
Booking Holdings
(BKNG), given a Buy rating and a $3,500 target price. Shares of Booking were down 0.1% at $2,968.35 in premarket trading.
Cunningham and Regan point to Booking’s steady market share and marketing spend, while maintaining the most dominant position within the subsector, with growth options via air tickets and alternative accommodation.
That compares favorably with
Airbnb
(ABNB) and
Expedia
(EXPE) they say. Airbnb saw share gains surge during the pandemic but its growth has normalized since then and it could lose out as companies require workers to return to offices, according to the analysts. Expedia has lost market share and it will need time to see if it can fight back with higher market spend, Cunningham and Regan wrote.
They assigned Hold ratings to Airbnb and Expedia with target prices of $160 and $135 respectively. Airbnb traded down 0.8% at $150.77 while Expedia was down 0.4% at $122.08 in premarket trading.
Write to Adam Clark at adam.clark@barrons.com
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