On Monday, UBS expressed concerns over the financial outlook for lodging companies, particularly citing issues in Hawaii and New York City that could impact earnings before interest, taxes, depreciation, and amortization (EBITDA) for Park Hotels & Resorts Inc. (NYSE:PK) and Host Hotels & Resorts, Inc. (NASDAQ:HST). The firm adjusted its EBITDA projections for PK downward by 3-4% for fiscal year 2025. This follows a similar revision last week when UBS reduced its EBITDA estimate for HST by 5%.
The analyst from UBS pointed out that Hawaii's tourism industry does not appear to be on the path to recovery in fiscal year 2025, or potentially even in 2026. This is particularly significant for PK, as Hawaii accounts for 32% of its EBITDA, which currently stands at $649 million. Despite these challenges, PK maintains a strong dividend yield of 10.38% and trades near its 52-week low, suggesting potential value opportunity according to InvestingPro's Fair Value analysis. HST is also affected, with Hawaii representing 8% of its EBITDA. Both companies have invested heavily in renovations within the state, which adds to the financial strain.
Furthermore, labor costs in New York City are expected to rise due to the renewal of labor contracts in 2026. This could lead to increased expenses and potentially disruptive strikes. New York City contributes 7% to PK's EBITDA and 6% to HST's EBITDA for the fiscal year 2023.
The UBS analyst also mentioned that the recovery of group bookings, which is expected to benefit corporations like Marriott International, Inc. (NASDAQ:MAR) and Hilton Worldwide Holdings Inc. (NYSE:HLT), might not be as robust as anticipated. This casts a shadow over the general optimism for a post-pandemic recovery in the lodging sector.
The lodging industry has been closely monitored by investors as it navigates the post-pandemic landscape, with particular attention to market-specific factors such as tourism recovery and labor costs. The latest updates from UBS suggest that investors may need to brace for potential headwinds affecting profitability for key players in the sector. For deeper insights into PK's valuation and growth prospects, InvestingPro subscribers can access comprehensive analysis, including 12 additional ProTips and a detailed Pro Research Report, helping investors make more informed decisions in this challenging market environment.
In other recent news, Park Hotels & Resorts reported a Q4 dividend of $0.65 per share, reflecting its 2024 operating results. This includes a standard quarterly dividend of $0.25 and an additional top-off dividend of $0.40. The firm has returned roughly $375 million to its shareholders throughout 2024, comprising nearly $290 million in cumulative dividend payments and over $85 million in share repurchases. Citi analysts maintained their Buy rating and $18.00 price target for Park Hotels & Resorts, taking into account revised Revenue Per Available Room (RevPAR), margin expectations, and tax credits received in the first half of 2024.
UBS analyst Chris Woronka upgraded the financial model for Park Hotels & Resorts, raising the price target to $15.00 from $14.00, while maintaining a neutral rating on the stock. The firm's Q4 RevPAR forecast was decreased to -5% year-over-year, indicating a reduction in the Q4 EBITDA estimate to $128 million from $150 million. Park Hotels & Resorts also announced significant investments in property renovations, with over $200 million expected to be completed by early 2025. Despite challenges such as labor strikes and Hurricane Helene, analysts have noted strong RevPAR growth in urban markets like Chicago, New Orleans, and Boston, and resort markets, particularly Orlando and Miami. These are recent developments in the ongoing story of Park Hotels & Resorts.
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