Canaccord Sees 25% Upside In Lodging

Canaccord Genuity's Ryan Meliker mentioned that the sentiment on Lodging stocks improved in February. The CG Lodging Index was up 11.7 percent, as compared to a 0.4 percent decline in the S&P 500 and a 0.7 percent fall in the RMZ.

The positive results came during an earnings season when the Lodging sector missed the EBITDA estimates on a weighted basis. The segment also guided to 2016 EBITDA and FFO EPS that was below the consensus estimates at the midpoint, Meliker pointed out.

Meliker expects investors to see the newly set expectations for 2016 as a good entry point, since the odds of the companies beating the guidance are high.

The analyst believes that the Lodging sector is a "binary call," whose fate is based on the macro economic outlook. "With the stocks still trading at steep discounts to long run average multiples and NAVs for the REITs, if this sentiment shift persists, we see 25% upside potential across the group. However, if macro-economic outlooks deteriorate from current levels, we could see the stocks down 40% through the remainder of the year," Meliker added.

Meliker believes the segment's 2016 guidance is achievable and even beatable as thus expect sentiments and multiples to improve once the better-than-expected earnings are reported and guidance is raised.

The analyst expects lodging stocks to appreciate, but identified Summit Hotel Properties Inc INN and Marriott International Inc MAR as the top picks.