Despite changing consumer demands in the travel industry, there is still a strong desire to spend on travel experiences. This presents an opportunity for investors in hotel stocks, according to analysts at Melius Research. However, caution is advised when it comes to online travel platforms.
Melius analysts Conor Cunningham and Daragh Regan highlight that consumers are now prioritizing urban and international markets over domestic and rural locations. Additionally, there is a notable shift in consumer spending from goods to experiences, which bodes well for the travel industry.
One key advantage of investing in hotels is their consistent growth, regardless of macro environment trends. Furthermore, the asset-light and fee-based business models employed by hotel brands offer more resilience and defense compared to other sectors within the travel industry, according to Cunningham and Regan.
Although there were concerns about financing for further hotel room growth after the U.S. bank panic earlier this year, the Melius analysts predict a healthy expansion in international markets. They also anticipate a potential boost from a return to corporate travel.
Melius Research has assigned Buy ratings to three prominent hotel stocks, namely Hilton Worldwide Holdings (HLT), Hyatt Hotels (H), and Marriott International (MAR). These recommendations come with target prices of $182 for Hilton, $148 for Hyatt, and $230 for Marriott.
Despite already having experienced growth of over 20% this year, the average forward price-to-earnings multiples for these three hotel stocks are currently around 22 times. This is below the pre-pandemic average of 23 times, even as the S&P 500’s average multiple has risen.
In conclusion, the shifting demands of consumers in the travel industry provide an opportunity for investors in hotel stocks. By prioritizing urban and international markets and adapting their business models to focus on experiences, hotels are well-positioned for growth. It is no wonder that Melius Research recommends Hilton, Hyatt, and Marriott as strong investment options in this evolving landscape.
Online Travel Stocks: A Mixed Outlook
Introduction
Booking Holdings: The Preferred Choice
Cunningham and Regan have identified Booking Holdings (BKNG) as their preferred stock in the online travel sector. It is rated as a Buy with a target price of $3,500. One key factor that sets Booking apart is its steady market share and consistent marketing spend. Additionally, it holds a dominant position within the subsector and offers growth opportunities through air tickets and alternative accommodation.
Airbnb’s Struggles and Expedia’s Challenges
While Airbnb (ABNB) experienced significant share gains during the pandemic, Cunningham and Regan note that its growth has since normalized. Furthermore, the analysts predict that Airbnb may face challenges as companies require employees to return to offices. In contrast, Expedia (EXPE) has lost market share and will need time to recover with higher market spend.
Ratings and Target Prices
Cunningham and Regan have assigned a Hold rating to both Airbnb and Expedia, with target prices of $160 and $135 respectively. This highlights their skepticism regarding the short-term prospects of these companies.
Conclusion
In summary, the future for online travel stocks appears complex. While Booking Holdings stands out as a promising investment option, both Airbnb and Expedia face unique obstacles that may hinder their growth in the near term. Investors in this sector must carefully consider these factors before making any decisions.
