Exactly one year ago coronavirus pandemic started spreading around the world and the big stock crash soon followed. One year later almost all hotel stocks rebounded to exactly the same positions where they were the day before the crash. But digging into the earnings report’s reveals a muddled picture
The economy has strengthened, corporate profits have surged and the stock market has rebounded. As a result, company purse strings are loosening and travel is starting to pick up. At least that is how the stock charts look like.
Hotel operators couldn’t be more pleased with their stock prices but the sad reality is, 2021 will be another bad year for hospitality industry. Last year, shares of Hilton (HLT) and Wyndham (WYND) have risen back to their pre-pandemic levels, with Hyatt Hotels Corp. (H) being an exception— and that’s on top of double-digit gains in 2019.
The pandemic, economic recession and work from home have taken a heavy toll on lodging companies in 2020. Hotel occupancy rates plummeted, companies lost pricing power and revenue per available room tanked. For an industry with high fixed operating costs, the downturn proved to be a profit killer.
But in cyclical industries like lodging, downturns are followed by upturns. And market watchers say the hotel business is entering a recovery. Of course, there have been head fakes before, but this time, there are some encouraging numbers and macroeconomic trends bolstering the rebound.
And the macro trends are well known by now — election year is behind us, vaccines came, along with a more buoyant stock market — but the improving industry metrics are particularly impressive. Consider RevPAR: According to HospitalityNet, RevPAR growth will be the strongest ever recorded in 2021. It is expected to grow more than 30%. And when it comes to jobs, hospitality and leisure industry lost more than 60K jobs in January, 2021 but this is nothing compared to December 2020, when 536,000 employees lost their jobs.
And RevPAR’s critical, because even a modest increase in RevPAR can have an outsized impact on earnings. Just a 1% increase in RevPAR can mean an additional 10 cents in earnings each for hotel stocks.
Granted, there are some lingering concerns. Prolonged pandemic could derail the lodging sector’s recovery quickly.
The virus threat aside, most market watchers agree it’s green light time for this industry.
As for the stocks, well, they’re another matter. The recovery is already priced in, while the industry’s heavyweights aren’t excessively overvalued, they’re no bargain, either. Upward earnings revisions may drive hotel stocks even higher, but given the market’s bumpiness of late, investors might want to wait for a pullback before checking in.