Goldman Sachs Initiates Coverage of US Hotel Stocks via Investing.com

Goldman Sachs has initiated coverage of the US lodging sector, offering a nuanced view of what lies ahead for the industry.

The note acknowledges that the context for 2024 is challenging, with several companies adjusting their forecasts downward for the second half of 2023, raising concerns that the accommodation cycle has peaked.

However, analysts at Goldman Sachs remain cautiously optimistic, citing favorable macroeconomic forecasts and resilient business models that offer long-term growth potential.

The U.S. lodging industry is facing a “turbulent” environment, marked by concerns about late-cycle dynamics so far this year.

Many companies have cut their forecasts for the second half, raising doubts about the sector’s ability to maintain its current momentum.

However, Goldman Sachs believes that much of this downside has already been priced in, with investor expectations for RevPAR already moderate.

Importantly, the macro brokerage team projects stronger-than-expected US GDP growth alongside accelerating personal disposable income through 2025, which supports a more favorable outlook for the lodging sector.

Goldman Sachs highlights key themes shaping the accommodation sector, including a slowdown in RevPAR growth, expected to grow by just 1.2% in 2024 after a strong 2023, before rebounding by 2026 driven by a recovery in business travel and by group.

This cycle differs from previous ones, with a faster recovery but persistent employment challenges and supply constraints. Asset-light models have emerged, improving earnings stability.

However, timeshare companies face vulnerabilities from weakening consumer sentiment and rising loan losses, impacting Hilton Grand Vacations and Marriott Vacations.

Despite the stock gains in 2023, Goldman sees the potential for further appreciation as valuations remain supported by strong free cash flow patterns.

Based on their analysis, Goldman Sachs offers several stock recommendations in the accommodation sector, favoring companies with strong free cash flow generation, resilient earnings profiles and lower exposure to macroeconomic risks:

Hilton Worldwide Holdings (NYSE: ) – Buy – $245 price target

Hilton is seen as a standout company, delivering robust supply growth despite subdued US construction activity.

The company’s use of partnerships and mergers and acquisitions, along with its asset-light model, positions it for long-term growth. With combined free cash flow (FCF), Hilton remains a top choice for investors looking for strength and upside.

Wyndham Hotels & Resorts – Buy – $96 price target

Wyndham is flagged for accelerated room growth driven by ECHO developments and improved franchisee retention.

The company’s ability to grow its room base by around 4% in 2024 and 2025, along with its modest valuation, makes it an attractive investment opportunity.

In addition, the company’s ancillary charge streams are expected to boost EBITDA growth and boost valuation.

Marriott International – Buy – $267 price target

Marriott’s large exposure to luxury, urban and full-service hotels puts it in a strong position for recovery, especially as business and group travel picks up.

The stock’s valuation gap over Hilton has widened, and Goldman Sachs expects that gap to close as the market recognizes Marriott’s long-term growth potential.

Hyatt Hotels – Neutral – $151 price target

Although Hyatt has successfully transitioned to an asset-light model, its higher exposure to macroeconomic risks and challenges in developing luxury hotels make it less attractive compared to peers. However, the company’s balanced risk-reward profile offers upside potential.

Travel + Leisure Co. – Neutral – $44 price target

While Travel + Leisure’s core business remains stable, rising loan loss provisions and consumer concerns are keeping analysts on edge. The company’s recent strategic acquisitions, including Accor and Sports Illustrated, could provide some upside, but the stock is considered fairly valued for now.

Choice Hotels International – Sell – $105 price target

Goldman Sachs sees downside risk for Choice Hotels as its net unit growth targets appear too ambitious.

With lower free cash flow conversion and tougher comparisons following the Radisson synergies, the stock is expected to face headwinds in 2024 and 2025.

Hilton Grand Vacations – Sale – $31 price target

Hilton Grand Vacations faces significant challenges, including rising delinquencies and disruptions since the integration of Bluegreen Vacations.

As consumer weakness weighs on big-ticket items like short-duration stocks, Goldman Sachs sees limited upside for the stock in the near term.

Marriott Vacations Worldwide – Sell – $62 price target

Like HGV, Marriott Vacations is vulnerable to consumer headwinds and rising delinquencies.

The company’s exposure to discretionary spending and challenges in Hawaii further complicate the outlook, and Goldman Sachs believes the stock will remain under pressure until these issues are addressed.