3 Hotel Stocks to Watch for Now as Industry Headwinds Persist

Core Viewpoint - The Zacks Hotels and Motels industry is currently facing challenges due to rising costs, demand fluctuations, and competitive pressures, but companies are pursuing growth strategies to enhance their market position [1]. Industry Overview - The Zacks Hotels and Motels industry includes companies that own, lease, manage, develop, and franchise hotels, as well as those involved in vacation ownership and exchange [2]. Trends Impacting the Industry - Margin Pressure: Operating costs, particularly labor, are significantly impacting profitability, with staffing shortages leading to increased wages and reliance on third-party staffing [3]. - Rising Expenses: Hotels are experiencing higher costs for property maintenance, insurance, and energy, while demand normalization has weakened pricing power, further squeezing margins [4]. - Economic Challenges: The U.S. economy is presenting headwinds, with inflation, high interest rates, and reduced consumer confidence affecting discretionary spending and corporate travel budgets [5]. Future Outlook - Gradual Improvement: Projections indicate that U.S. hotel performance may stabilize and improve starting in 2026, with average daily rates expected to rise by about 1% and revenue per available room (RevPAR) anticipated to increase by 0.6% [6][7]. - Digitalization: Hotel owners are leveraging digital tools to enhance guest experiences and optimize pricing, which is expected to help capture additional market share [8]. Industry Performance - Zacks Industry Rank: The Zacks Hotels and Motels industry currently holds a rank of 179, placing it in the bottom 26% of 243 Zacks industries, indicating a negative earnings outlook [9][10]. - Stock Market Performance: Over the past year, the industry has underperformed the S&P 500, gaining only 1.9% compared to the S&P 500's 18.5% increase [12]. Valuation Metrics - The industry is trading at a trailing 12-month EV/EBITDA of 16.81X, compared to the S&P 500's 17.58X, indicating a relatively lower valuation [15]. Company Highlights - Marriott International: Benefiting from a 1.9% year-over-year increase in RevPAR and strong growth in international markets, with a focus on strategic growth through conversions and new openings [17]. The consensus estimate for Marriott's 2026 earnings indicates a 16.4% increase [18]. - Hilton Worldwide: Experiencing strong net unit growth and steady demand, with a forecast of low single-digit RevPAR growth in the EMEA region [21]. The consensus estimate for Hilton's 2026 EPS suggests a 12.5% growth [22]. - Hyatt Hotels Corporation: Capitalizing on strong leisure travel demand and RevPAR gains, with a focus on unit expansion and an asset-light model [25]. The consensus estimate for Hyatt's 2026 earnings indicates a significant 47.5% growth [26].