Wells Fargo initiated Hyatt Hotels (NYSE:H) at Overweight and Hilton (HLT) and Marriott (MAR) at Equal Weight in a note covering hotel stocks on Tuesday.
Analysts at Wells Fargo said they believe US lodging is entering a period of stabilization and they prefer names that cater to group and higher-end business/leisure travel, have strong unit growth outlooks, and carry reasonable valuations.
"We think US Lodging is entering a period of stabilization, following a robust, leisure led-recovery in 2021-22, a business travel recovery in 2023, and the 2H23 group/business recovery continuing into 2024," the analysts explained.
The firm said they like Hyatt, which was assigned a $138 price target due to its "favorable group, high-end leisure and APAC exposure, 6-7% NUG guide, and reasonable valuation."
Hilton was given a $168 price target, explaining that while there is a lot to like about the company, they "view the risk/reward as fairly even."
"HLT has an impressive, fee-based business model w/ multiple growth drivers (NUG, RevPAR, royalties, and ancillary credit cards/branding fees) and a well-respected mgmt team w/ a strong track record. Group business should be a tailwind in 2024 (pacing +18% y/y), it's been aggressively repurchasing its stock (authorization now $4.2b, ~10% of mkt cap), and its CMD (March 2024) is a catalyst. But at 15x 2024E EV/EBITDA, we think these positives are reflected in the stock," the analysts said.
Marriott is well-positioned for 2024 strength, but the valuation seems fair, according to Wells Fargo, who has a $220 price target on the stock.
"MAR is a high-quality, asset-light, capital-returning compounder that is attractively positioned to benefit from 2024 lodging tailwinds, including group strength, high-end leisure demand, and APAC/China recovery," they explained. "We also like MAR for its non-RevPAR-related fee growth (pacing at a 10% CAGR, primarily driven by credit card fees, with ~$600m in FY23E) and ample share repurchases. However, at 15x 2024E EV/EBITDA, we believe most of these positives are reflected in the stock."