Zacks Industry Outlook Highlights: Priceline, Expedia, TripAdvisor, Hilton and Marriott

For Immediate Release

Chicago, IL – February 21, 2018 – Today, Zacks Equity Research discusses the Ecommerce, including The Priceline Group Inc. PCLN, Expedia Inc. EXPE, TripAdvisor TRIP, Hilton Worldwide Holdings Inc. HLT and Marriott International, Inc. MAR.

Industry: Hotels, Part 1

Link:  https://www.zacks.com/commentary/150004/us-hotel-industry-outlook---february-2018

The year 2017 favored the U.S. hotel industry with moderate demand growth supporting increases in both occupancy and average daily rate (ADR). As a result, revenue per available room (RevPAR) witnessed a rise of 3% over 2016.

This is further reflected in the industry’s stock-price performance. Over the past year, the Zacks Hotels and Motels Industry has fared better than the broader S&P 500 index. While the industry has gained 38.4%, the broader index has added only 16.7%.

With fourth-quarter gross domestic product (GDP) growth remaining decent at 2.6%, the economy expanded at an annual rate of 2.3%, better than the 1.5% growth rate recorded in 2016. We note that rising employment, higher real income, and increased household net worth reinforced consumer confidence and sentiment. This has resulted in a steady rise in business and leisure travel, and higher transaction volumes, which are likely to continue.

Going forward, consumer and business spending are expected to keep the mood upbeat, suggesting that the U.S. economy will remain on solid footing for 2018. In fact, the Atlanta Federal Reserve’s GDPNow model forecasts healthy 3.2% (annualized rate) GDP growth in first-quarter 2018.

However, peaking supply continues to be a meaningful downside risk and is expected to put pressure on the pricing power, thereby tempering the performance somewhat.

Number Crunching

Statistics underscore the expectation of moderating yet positive performance by the hotel industry. A recent report by PricewaterhouseCoopers (PwC) shows that new supply is likely to rise 1.9% in 2018, flat with 2017. This is likely to result in a 0.1% decline in occupancy rates in 2018 to 65.5%.Though ADR and RevPAR are projected to climb 2.1% and 2%, respectively this year, the rate of increase will be less than the average growth recorded in the past few years.

Meanwhile, the Baird/STR Hotel Stock Index, which comprises 20 of the largest market capitalization hotel companies publicly traded on a U.S. exchange and attempts to characterize the performance of hotel stocks, rose 3.3% in December 2017. In fact, year to date, the index is up 32%. Higher interest rates, tax reform and hurricane-related demand tailwinds aided the outperformance.

Additionally, according to Smith Travel Research (STR), a leading information and data provider for the lodging industry and Tourism Economics, U.S. hotels continue to witness robust improvement across all metrics. While overall occupancy at U.S. hotels was up 1.4% year over year for the week ended Feb 3, 2018, ADR rose 2.2%. Resultantly, RevPAR grew 3.6% in the same time frame.

Ongoing Obstacles

Uncertainty, both international and domestic, may continue to weigh on the performance of the U.S. lodging industry.  Moreover, negative sentiment related to traveling to and from the United States given the Trump administration’s stringent policies on immigration and tourism visas is detrimental to hotels.

While the anticipated weakening of U.S. dollar could boost inbound international travel, it would then have a negative impact on domestic consumer spending, forcing consumers to shift discretionary spending. Additionally, higher costs and increased supply along with pockets of geopolitical instability and economic slowdown are likely to continue to pose  headwinds.

Meanwhile, hoteliers have been focusing on renovation, and digital and marketing initiatives to boost traffic and capitalize on growing tourism numbers. However, to do so, steep costs incurred by leading hoteliers are taking a toll on profits. Moreover, high labor costs will continue to be a major concern for hoteliers, and as they won’t be able to boost ADRs as much as they would like, their profits may be dented further. In fact, online travel agents like The Priceline Group Inc., Expedia Inc. and TripAdvisor are also limiting the pricing power of these brands.

Another major threat comes from home-sharing companies, like Airbnb, Inc., which offer digital service allowing travelers to book homes at holiday destinations. With lower overhead costs and far less regulations than what hotel companies have to comply with, these firms have made steady inroads into the industry and are grabbing share from giants like Hilton Worldwide Holdings Inc. and Marriott International, Inc. Notably, both companies carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Potential Growth Drivers

The hotel industry is particularly vulnerable to the ebbs and flows of economic conditions. So the present solid economic fundamentals that are likely to continue spurring consumer spending in 2018, raises optimism for hoteliers. Moreover, hoteliers will be able to counter any economic volatility better, if they keep moving from owning real estate to franchising their brands and services.

Also, hoteliers must look for ways to sustain their growth as online private accommodation aggregators flood the marketplace with new inventory. In fact, Marriott’s acquisition of Starwood Hotels & Resorts Worldwide Inc. was being viewed as a move to combat the rising threat from online travel agents and home-sharing companies.

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Expedia, Inc. (EXPE) : Free Stock Analysis Report
 
The Priceline Group Inc. (PCLN) : Free Stock Analysis Report
 
TripAdvisor, Inc. (TRIP) : Free Stock Analysis Report
 
Marriott International (MAR) : Free Stock Analysis Report
 
Hilton Worldwide Holdings Inc. (HLT) : Free Stock Analysis Report
 
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