SunTrust Downgrades Hilton Hotels And RLJ Lodging Trust

Hilton Hotels Corporation HLT and RLJ Lodging Trust RLJ have been hit with downgrades.

The Analyst 

SunTrust analyst C. Patrick Scholes downgraded Hilton from Buy to Hold and maintained a $101 price target.

The analyst downgraded RLJ Lodging from Hold to Sell and lowered his price target from $19 to $15.

The Thesis

Over the past two years, Hilton was SunTrust’s favorite hotel name, but after significant outperformance, Scholes sees gradual RevPAR growth deceleration in his forward channel checks.

The analyst also says Hilton has one of the strongest net rooms growth percentages in the industry, growing 6.5% this year, but he believes they're at their cyclical peak.

“The good news is that next year’s unit growth percentage will be similar to this year’s however we attach a very low probability that that figure will be materially better than this year’s,” he said in a note.

Scholes says Hilton should see EBITDA growth in 2020 but due to the RevPAR deceleration and peak unit growth percentage, he has a difficult time keeping the stock at a Buy rating.

RLJ Lodging Trust’s downgrade comes as the analyst says hotel REIT margins are under pressure primarily from accelerating labor costs.

“We assume that many of RLJ’s more labor intensive full-service hotels and some urban select-service hotels have similarly material headwinds due to the nearly 1M open positions in hospitality and related services in the U.S.,” said Scholes.

RLJ will be facing the highest degree of new supply/competition due to its greater than average exposure to the upscale hotel segment, said the analyst.

Price Action

RLJ Lodging shares are trading down 0.56% at $17.62 Tuesday afternoon. Hilton shares are trading flat.

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