Goldman Sachs On Lodging Stocks: What To Sell, What To Buy

Recent industrywide consolidation in the lodging sector leaves multiple stocks trading at an "unfavorable" risk-reward profile, according to Goldman Sachs.

The Analyst

Goldman Sachs' Stephen Grambling downgraded Host Hotels and Resorts Inc HST from Neutral to Sell with an unchanged $20 price target. The analyst downgraded Park Hotels & Resorts Inc PK from Neutral to Sell with a price target lifted from $27 to $29.

The Thesis

From a historical point of view, lodging REITs outperform the broader S&P 500 index immediately following a recession, and performance in the mid-to-late-cycle is mixed, Grambling said in a research report. Lodging REIT stocks are trading at a premium to private market, full-service transaction valuations, which implies investors should take a more "cautious" stance, the analyst said. 

Investors hoping for continued M&A deals in the space to support upside may want to reconsider, Grambling said: full-service hotel REITs are trading in a "tight range" of 13x to 14x NTM EV/EBITDA, so any tie-up would need to include expectations for large earnings accretion to support a deal at these valuation levels, he said. 

Related Link: Evercore ISI Raises 2019 Estimates For Lodging Stocks, Says Environment Favorable For Sector

Host Hotels Downgraded

Host Hotels' stock has outperformed the broader market and gained 18 percent since the start of the second quarter of 2018 and is trading at 13.2x NTM EV/EBITDA, the analyst said. The equity is trading one turn above its five-year average, and this comes at a time when it is operating near the peak revenue per available room and operating margins, he said. The company faces greater supply growth compared to its peers, further limiting both RevPAR and EBITDA upside, according to Goldman Sachs. 

Park Hotels Downgraded

Similar to Host Hotels, Park Hotels' stock outpaced the broader market in the second quarter and is up 17 percent, the Grambling said. The stock is now trading at essentially an all-time high multiple of 12.6x NTM EV/EBITDA and a premium to the five-year average full-service hotel REIT multiple of 12.5x, he said. The stock is trading at a level where it is difficult to justify continued upside, the analyst said.

What To Buy

Investors should view lodging c-corps more favorably versus hotel REITs amid expectations for superior EBITDA growth through unit growth, higher international RevPAR and revenue from renegotiated credit card programs, Grambling said. The three Buy-rated names the analyst said investors may want to consider are: 

  • Marriott International Inc MAR, with a price target lifted from $158 to $165. 
  • Hilton Hotels Corporation Common Stock HLT, with a price target lifted from $99 to $100. 
  • Wyndham Hotels & Resorts Inc WH, with an unchanged $82 price target.

Price Action

Shares of Host Hotels and Resorts were down 2.35 percent at the close Monday, while shares of Park Hotels & Resorts were lower by 2.03 percent. 

Related Link: Credit Suisse On The Timeshare Sector: What's Not To Like?

Posted In: Goldman SachshotelLodgingStephen GramblingAnalyst ColorREITDowngradesPrice TargetReiterationAnalyst RatingsReal Estate

Ad Disclosure: The rate information is obtained by Bankrate from the listed institutions. Bankrate cannot guaranty the accuracy or availability of any rates shown above. Institutions may have different rates on their own websites than those posted on Bankrate.com. The listings that appear on this page are from companies from which this website receives compensation, which may impact how, where, and in what order products appear. This table does not include all companies or all available products.

All rates are subject to change without notice and may vary depending on location. These quotes are from banks, thrifts, and credit unions, some of whom have paid for a link to their own Web site where you can find additional information. Those with a paid link are our Advertisers. Those without a paid link are listings we obtain to improve the consumer shopping experience and are not Advertisers. To receive the Bankrate.com rate from an Advertiser, please identify yourself as a Bankrate customer. Bank and thrift deposits are insured by the Federal Deposit Insurance Corp. Credit union deposits are insured by the National Credit Union Administration.

Consumer Satisfaction: Bankrate attempts to verify the accuracy and availability of its Advertisers' terms through its quality assurance process and requires Advertisers to agree to our Terms and Conditions and to adhere to our Quality Control Program. If you believe that you have received an inaccurate quote or are otherwise not satisfied with the services provided to you by the institution you choose, please click here.

Rate collection and criteria: Click here for more information on rate collection and criteria.