- Wednesday, October 16, 2024
According to Melius analysts, Conor Cunningham and Daragh Regan, consumers are now prioritizing urban and international destinations over domestic and rural locations. Additionally, there is a remarkable shift from material possessions to seeking enriching experiences. This trend bodes well for the performance of travel-related stocks.
Cunningham and Regan emphasize that hotels possess a unique ability to sustain growth regardless of prevailing macroeconomic trends. Moreover, they highlight the resilience of the asset-light/fee-based business model adopted by hotel brands. This model ensures a more dependable and defensive revenue stream compared to other sectors within the travel industry.
Although concerns had been raised about the financing of further hotel room expansion following the U.S. bank panic earlier this year, Melius analysts foresee a healthy outlook for international expansion. They also expect a potential resurgence in corporate travel, which could provide an additional boost for the hotel industry.
Given these promising prospects, Melius Research has assigned Buy ratings to Hilton Worldwide Holdings (ticker: HLT), Hyatt Hotels (H), and Marriott International (MAR). The target price for Hilton is set at $182, compared to Monday's closing price of $155.48. Hyatt's target price is projected at $148, whereas its current trading price stands at $126.75. Marriott's target price is set at $230, while its premarket trading price on Tuesday was reported at $202.80.
Despite all three hotel stocks experiencing over 20% growth this year, the analysts at Melius argue that their average forward price-to-earnings multiples, around 22 times, still fall below the pre-pandemic average of 23 times. This stands in contrast to the rising average multiple of the S&P 500.
In light of these shifts in travel demands and the favorable outlook for hotel stocks, investors are advised to consider this evolving landscape as an opportune moment to explore investment possibilities within the hotel industry.
Online Travel Stocks: A Cautionary Perspective
In the world of online travel, two experts, Cunningham and Regan, adopt a more cautious approach. Although they believe that online travel will benefit from the long-term growth in the travel industry, they caution that short-term comparisons pose challenges. Particularly in vacation rentals, there has been a shift back to urban markets and an increase in the return to office, which further complicates the landscape.
Among the online travel stocks, the experts highlight Booking Holdings (BKNG) as their top choice. It has been given a Buy rating and a target price of $3,500. Despite a slight decline of 0.1% to $2,968.35 in premarket trading, Booking continues to retain a steady market share and invest significantly in marketing. With its dominant position in the subsector, it has ample growth opportunities through air tickets and alternative accommodations.
In comparison, Airbnb (ABNB) and Expedia (EXPE) fall short. While Airbnb experienced a surge in share gains during the pandemic, its growth has since normalized. The analysts suggest that as companies require employees to return to offices, Airbnb may lose out. Expedia, on the other hand, has witnessed a decline in market share. The analysts believe it will take time to determine if Expedia can regain its footing through increased market spending.
Given these assessments, Cunningham and Regan have assigned Hold ratings to both Airbnb and Expedia. They have set target prices of $160 for Airbnb and $135 for Expedia. Currently, Airbnb trades at $150.77 (down 0.8%) while Expedia stands at $122.08 (down 0.4%) in premarket trading.
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