Watch these hotels stocks to outperform in 2023
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Morgan Stanley is positive on the hotel sector with the recovery in travel still underway. Analyst Stephen Grambling and team believe macro risk is more muted than a typical economic cycle and pointed to U.S. RevPAR trends above 2019 levels and a full recovery in occupancy on higher daily rates.
Within the sector Hyatt Hotels (NYSE:H) is the top overall pick with the firm's new coverage, while Hilton (NYSE:HLT), Marriott International (MAR), and Wyndham Hotels & Resorts (WH) also landed Overweight ratings.
On Hyatt Hotels (H): "We expect Hyatt's combination of selling owned assets, rapid growth in asset light fees, and capital return will drive an inflection in FCF/share and valuation. We forecast Hyatt will generate ~$1.298/$1.326bn in EBITDA, implying leverage of 1.7x/1.8x before considering buyback, well below asset-light peers targeting 3.0x+."
On Hilton Worldwide (HLT): "Hilton has among the highest mix of franchise fees plus variable management fees among the C-corps. At the same time, the company has consistently delivered net unit growth at or near the top of the publicly traded peer group with the in construction pipeline representing 18% of existing rooms, which should support 5%+ growth over the next two years."
On Marriott International (MAR): "Marriott has transformed its business over the past 10 years, shedding owned real estate, spinning off timeshare, and shifting management contracts to be more variable. We believe these shifts provide significantly lower cyclicality (still generated $584 MM in FCF in 2020) that should prompt a further re-rating as the company bucks the high beta label pegged on the stock as a bellwether for the traditionally cyclical lodging industry."
On Wyndham Hotels & Resorts (WH): "In our view, the combination of accelerating unit growth and improved FCF conversion warrants the most sizeable re-rating of the peer group (from 11.4x pre-pandemic to 14.6x on our PT-implied 2024e) as FCF yield on our target would remain at the high end of peers at ~5.8% in 2024 (in-line with current peer average and below our PT-implied FCF yield average closer to 5%, which is more in-line with REITs)."
Compare valuation, growth, and profitability metrics on H, HLT, MAR, and WH side by side.