3 Stocks Worth Watching in a Promising Hotels & Motels Industry
The Zacks Hotels and Motels industry is benefiting from an increase in occupancy, average daily rate (ADR) and revenue per available room (RevPAR). The industry's demand outpaced supply in the first quarter of 2025. Industry participants are concentrating on growth strategies, including expanding their portfolios, converting properties, forging partnerships and enhancing loyalty programs. Industry players, such as Marriott International, Inc. MAR, Hilton Worldwide Holdings Inc. HLT and Soho House & Co Inc. SHCO, are likely to benefit from the factors mentioned above.
Industry Description
The Zacks Hotels and Motels industry comprises companies that own, lease, manage, develop and franchise hotels. Some vacation ownership and exchange firms are also part of the industry. Several participants own, construct and operate resorts. Some companies develop lodges, villages and mobile accommodations, including modular, skid-mounted ones and central amenities that provide long-term and temporary workforce accommodations. Some industry players develop, market, sell and manage vacation ownership and associated products. A few hoteliers also offer studios, one-bedroom suites and accommodations to mid-market business and personal travelers.
3 Trends Shaping the Future of the Hotels & Motels Industry
RevPAR & ADR Growth in Q1: Per a CBRE report, in the first quarter of 2025, the hotel industry experienced a 0.4% year-over-year increase in occupancy as demand outpaced supply. Increased occupancy, combined with a 1.9% uptick in ADR, contributed to a 2.2% improvement in RevPAR.However, CBRE has revised its 2025 outlook for the U.S. hotel industry, lowering expectations for occupancy, ADR and RevPAR due to a softer economic forecast and higher projected inflation. The firm now anticipates a 1.3% year-over-year increase in RevPAR, down from its earlier 2% projection, with ADR and occupancy growth revised downward. Despite the more cautious forecast, CBRE believes that the hotel sector will remain resilient, supported by stronger group and business travel, a weaker U.S. dollar, and more affordable airfares, all factors that can drive both domestic tourism and international arrivals. Digitalization to Drive Growth: Hotel owners are focused on maintaining the balance between maximizing hotel profitability and driving guest satisfaction. To this end, hoteliers have leveraged mobile and web check-in and mobile key technologies. These hoteliers also increased the use of digital tools to strengthen infrastructure, grow online package sales, enable self-service bookings, make real-time offerings and enhance the overall customer experience. This and the emphasis on pricing optimization and merchandising capabilities will likely help hoteliers capture additional market share.High Costs Remain Worrisome: Industry participants are concerned about higher costs. Rising salaries, wages and benefits have been adding to labor costs. The hospitality sector continues to struggle with labor shortages, driving up wages and reducing service quality. Hotels are finding it difficult to hire and retain staff, leading to reduced capacity and operational challenges. Heightened geopolitical risks and persistent macroeconomic uncertainty are of concern to the industry. Increases in food and beverage, and non-operating costs, as well as increased renovation costs, are hurting the industry.
Zacks Industry Rank Indicates Bright Prospects
The Zacks Hotels and Motels industry is grouped within the broader sector.The group's Zacks Industry Rank, which is the average of the Zacks Rank of all the member stocks, indicates bright near-term prospects. The Zacks Hotels and Motels industry currently carries a Zacks Industry Rank #88, which places it in the top 36% of the 245 Zacks industries. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than two to one.The industry's position in the top 50% of the Zacks-ranked industries results from a positive earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, analysts are gradually gaining confidence in this group's earnings growth potential. Before we present a few stocks that you may want to keep an eye on, let us look at the industry's recent stock-market performance and valuation picture.
Industry Outperforms the S&P 500
In the past year, the Zacks Hotels and Motels industry has outpaced the S&P 500 but has underperformed the sector. Over this period, the industry has appreciated 11.7% compared with the sector's rise of 18%. Meanwhile, the Zacks S&P 500 composite has rallied 9.3%.
Hotels & Motels Industry's Valuation
On the basis of the trailing 12-month EV/EBITDA, which is a commonly used multiple for valuing Hotels and Motels stocks, the industry is currently trading at 16.68X compared with the S&P 500's 16.39X. The sector's trailing 12-month EV/EBITDA ratio stands at 10.55X.Over the last five years, the industry has traded as high as 90.86X and as low as 13.01X, the median being 17.40X, as the chart below shows.3 Hotels & Motels Stocks to Watch
Soho House: The company reported strong first-quarter results, driven by strategic initiatives that are resonating with its global membership base. The company posted an 8% year-over-year increase in total revenues and noted meaningful growth in adjusted EBITDA, reflecting improved profitability. Key growth drivers include ongoing enhancements to the member experience across its global portfolio of Houses, and property openings such as the upcoming Soho Farmhouse Ibiza.SHCO currently flaunts a Zacks Rank #1 (Strong Buy). The Zacks Consensus Estimate for Soho House's 2025 bottom line suggests a surge of 81.1% from the year-ago period's actual. SHCO shares have risen 20.6% in the past year. You can see the complete list of today's Zacks #1 Rank stocks here.
Marriott: The company is benefiting from robust leisure demand and solid global booking trends. Also, substantial RevPAR growth in the international markets continues to drive improvements. The emphasis on expansion initiatives, digital innovation and the loyalty program bodes well. Marriott continues to enhance its Bonvoy loyalty program, which now has more than 237 million members.MAR currently carries a Zacks Rank #3 (Hold). The company's 2025 top and bottom lines are likely to witness year-over-year growth of 4.5% and 8.3%, respectively. MAR shares have gained 10.1% in the past year.
Hilton: Solid improvement in RevPAR on the back of increased occupancy rates and ADR continues to drive growth. Strong demand for leisure travel, along with growth in business transient and group travel, supported the performance. Also, Hilton's focus on unit expansion, hotel conversions and loyalty programs bodes well.HLT currently has a Zacks Rank #3. The Zacks Consensus Estimate for Hilton's 2025 EPS suggests growth of 10.5% from the year-ago period's actual. HLT shares have jumped 22.4% in the past year.
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This article originally published on Zacks Investment Research (zacks.com).
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