Morgan Stanley Bullish On Lodging, Checks In To La Quinta With An Overweight Rating

incrementally bullish on hotel chain La Quinta Holdings Inc LQ given expectations for a stronger economy, which will have a positive impact on lodging demand. Morgan Stanley's Thomas Allen upgraded La Quinta's stock rating from Equal Weight to Overweight with a price target boosted from $14 to $16 as prior concerns surrounding revenue per available room no longer apply. Specifically, S&P 500 companies just saw their best quarter in terms of revenue since 2014 and this is a good leading indicator of RevPAR trends.

Meanwhile, Morgan Stanley's economists raised their U.S. economic outlook and expects to see a 2.2 percent GDP growth in 2017 and 2018, up from a prior 2.0 percent growth outlook in both years. Perhaps more important, business fixed investment was raised from 2.3 percent in 2017 and 3.1 percent in 2018 to 4.5 percent this year and 3.7 percent next year.

As a result of these two tailwinds, the hotel chain's RevPAR is expected to grow 2.5 percent this year and 2.0 percent next year, Allen stated. This marks an improvement from prior estimates, which called for a RevPAR growth of just 2 percent this year and zero growth in 2018.

Finally, the analyst's outlook for RevPAR growth, combined with La Quinta's underperfomance year to date, is reason enough to justify an Overweight rating and for investors to "take the risk" in owning shares.

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