Buy This, Not That: Will These Hotel Plays Heat Up for Summer?

Shah Gilani|May 29, 2024

We’re officially in the summer season… which means it’s time to dive into hotel stocks as vacation travel starts to heat up.

So in this week’s episode of Buy This, Not That… I’m looking at six major players in the hotel industry.

From luxury brands to more affordable options, I’ve got them all covered.

We’re looking a global giant with a diverse portfolio of well-known brands…

A household name with a solid portfolio and good metrics…

And a more “downscale” option for budget travelers.

Which are BUYs… and which are NOT?

It’s all in the latest episode of Buy This, Not That… your exclusive guide to the stocks that are worthy of your money – NOW.

Click on the thumbnail below to watch.

TRANSCRIPT

Hey, everybody. Shah Gilani here with your weekly BTNT, as in Buy This, Not That.

Summer has unofficially started with the Memorial Day weekend behind us.

Now, summer officially starts on June 21, but we’re already there. Everyone’s in the mode, and that means there’s going to be travel. And that means this week, I’m going to talk about the big hotel chains that are listed.

So first off, the biggest, Marriott International Worldwide, symbol MAR. Now I’ll start off by saying it’s a BUY, but not here. All of the hotels, the big companies, including the likes of Las Vegas Sands and some of the others that are in Macau when in the when the gambling side of things, which I’m not gonna go to in this BTNT. I will get to in a future date.

But the big hotel chains that are not just domestic, but many of them are global, have all had a really good run since November of last year when the market took off. So most of them were languishing, but they’ve all had a good run. That worries me because now as we get into the season, there should be pops in their revenue. This thing should be good.

They kinda look like they’re starting to roll over a little bit because they’ve had such a big run. So Marriott is no exception. I do like Marriott. Marriott, you know the names.

The brands are really important, in my opinion, as far as these hotel groups, whether they’re franchising, whether they are the flag that someone else owns, whatever the situation, whether they’re in the management side of it, there are lots of names associated with the likes of, say, a Marriott. Now as far as Marriott International, you’ve got JW Marriott. You’ve got Marriott, of course. You’ve got the Ritz, Ritz Carltons.

You’ve got the W line of hotels. You’ve got the Saint Regis line, Edition, Autograph, Sheratons, Westins, Courtyards by Marriott. A lot. It’s a huge portfolio.

That’s why they are the biggest. International. $66 billion market cap here. Yes. Biggest in terms of market cap too.

Revenue, $6.3 billion. Biggest in terms of revenue, too, as far as the domestic hotel groups.

43% profit margin. That’s why I like Marriott, people, MAR. You gotta like that. It’s the winner as far as profit margin.

Huge revenues, with $6.3 billion and 43% profit margin on that, that speaks to me. Net income, $2.89 billion. They pay a piddling dividend, about 1%. It’s not even worth talking about. Quarterly revenue’s up 5%.

On a year over year basis, earnings growth has been kind of subdued, if not downsized.

That’s another reason I wouldn’t jump into it right now, but I do like it. Stock’s trading around $233.

It is a BUY… on a dip. I like this thing. I think it’s gonna test $230. If it tests $230, let’s see where it goes.

You wanna watch it that breaks $230. It could get down to $210. I would buy some at $210. But as far as the market goes, it’s a longer term hold at lower levels.

Right here, it’s a little too elevated for my liking but I’m not sure how high it’s going to go. And when you’re looking at a stock that’s trading $233, you want them to go at least 10%, 15%, I prefer, a minimum site down the horizon, which is a year of about 25% potential growth. Not so sure I see that with my lower levels.

Yes. I’m willing to take a chance up.

Next up is the Hilton Worldwide Holdings.

Hilton. Yes. You know the name. Symbol, HLT.

Brands, Waldorf, all the Hiltons, of course, iterations of Hilton as you know them.

LXR, Conrad, DoubleTree, Hilton Gardens, Hampton Hotel. So, yes, a nice portfolio.

Pretty big at $5 billion market cap. Revenue’s $4.52 billion.

Excuse me. $50 billion market cap. $5 billion I’d buy.

$4.52 billion in revenue.

26% profit margin. So pretty nice there.

Makes money, net income available to common shareholders, my favorite metric in terms of profitability, $1.2 billion. So makes good money, has a tiny 0.3% dividend yield. Ridiculous.

Payout ratio there is 13%. There’s plenty of room to move that. I don’t think they’re gonna do that. Quarterly revenue growth has been good year over year, and quarterly earnings growth has been good year over year. The problem is, I think HLT is a little overvalued here. Again, it’s had a great run since last November. We’re talking a trailing P/E of 44.

That’s a little steep for my liking because the group in general, it’s got a trailing P/E around 26.

Marriott, FYI, trailing P/E of 25. So another reason I like Marriott a little bit lower. But as far as HLT, Hilton Worldwide, I I can’t see it right there. I just it’s kinda looking like it’s getting a little rolled over. It’s expensive on a P/E basis. It’s had a good rise since November.

Trading around $200. I I think it’s gonna test $190. If it breaks there, we’ll want to see where it goes, but it’s gonna have to go a lot lower for me to get into it, because I think it’s pricey. I wanna see it come down a good bit to make it worth my while as far as, a capital allocation to HLT.

Next up is the InterContinental Hotel Group symbol, IHG.

Now IHG, InterContinental name, of course, Regent, Kimpton, Hotel Indigo Group, Crown Plaza, Holiday Inn, all their iterations, Holiday Inn Express, Holiday Inn this, Holiday Inn that.

So InterContinental has a very nice portfolio, trading around $100 right now. Again, it’s had that run like they’ve all had.

Market cap, $16 billion and change. Revenue, $3.73 billion. Profit margin, 20%. Not bad.

Net income, $750 million. Now, they pay a dividend. The yield is 1.49%. But what I don’t like about that is besides the fact that it’s a piddling dividend, is that 32% payout ratio. So they’re spending a lot of the net income available to common shareholders on a dividend. That doesn’t leave them a lot of room for expansions.

The revenue growth is good. The earnings growth is good.

But at $100, I think this needs to test $95. And if it does, it could go to $80. I’d be interested in it at $80. Trailing P/E of 23. So I like it.

It’s not bad. In fact, the metrics are pretty good, but, again, it’s had this run. So, I think if it gets to $80, I’d be a player. If it gets to $75, I’m definitely a player.

Take a piece in there. Then we have a chance to see this thing go up 25%, 35% in another year. So that’s how I feel about IHD. It’s a BUY, but at lower levels.

Next up, Hyatt Hotels Corporation, symbol H.

You know the names. Hyatt, all the iterations of the Hyatt, Park Hyatt, Grand Hyatts, etc., etc. Hyatt Regency.

They also have the Dream Hotels. They also have the Secrets Resorts, and Breathless.

So, pretty cool names, but a pretty nice portfolio for sure. But the trailing P/E is 23, but the forward now is looking like 38. So that’s getting pretty rich pretty quickly on a forward basis.

$15 billion in market cap, $6.63 billion in revenue. Great revenue. 10%, slightly over 10% profit margin.

The dividend is ridiculous. 0.4% yield. So it’s worthless.

The thing that’s interesting about this one is 9% of the floating stock has been shorted. So it might get a pop here and there.

But at $147, it’s NOT a buy. It’s not a buy based on the short and maybe some- or better than expected- earnings come down. 9% is not gonna move the stock that much. I think it’s gonna maybe test $132.

Yeah. It’s kind of this stock-wise, chart-wise, looks like it’s rolling over. I’m not gonna chase this one. I’m gonna watch this one, but even when it rolls over, I’m gonna have to see this thing succumb to some good selling before I have any interest in it, and I think you guys should look at it the same way.

Next up, Wyndham Hotels and Resorts symbol is WH.

You know, the Wyndham brand, of course.

They’re more franchising and management than ownership, but, again, it includes all the Wyndham iterations, Ramada, all the Ramada Encore, Ramada this, Ramada that iterations, Travelodge, Howard Johnson. You didn’t know that was still around, did you? La Quinta. So a little, I shall we say, downscale in terms of relative to the Marriott with, you know, Saint Regis and the Ritz.

Certainly, Wyndham is a little more downscale, but certainly does very well. $5.6 billion market cap, $1.38 billion in revenue, 17.25% profit margin. Nice profit margin. Net income, $238 million.

That’s net income available to common shareholders. Dividend, 2.08%. The problem with that dividend, even though I have a problem with it because it’s not compelling, is that they run a 50% payout ratio. So out of the $238 million net income available to common shareholders, they take 50% of that to pay that piddling dividend.

That’s a very high payout ratio for that kind of piddling dividend. So that reason alone, I’m not keen on Wyndham.

It is, you know, reasonable terms of trailing P/E at 24, forward is 16. So that means earnings look like they’re gonna pick up. But it’s just a NOT for me because I don’t like the revenue growth because it’s negative. I don’t like the earning growth that’s been negative.

I just don’t like it. Wyndham, I think this stock is a mess. I’m just not even gonna- I’m gonna say NOT to this. This isn’t even worth a fun play.

I just I don’t see any energy in this stock.

Last but not least, Choice Hotels International, CHH.

Choice Hotels, Comfort Inns, Quality Inns, Choice, of course, Clarion, Sleep Inn, Econo Lodge, and Radisson. All the Radisson iterations.

This is a $5.39 billion market cap company, $742 million in revenue, profit margin 32%, net $235 million, dividend, lousy, 1% yield, not a good payout ratio either, 25%. So they’re spending a lot of their net income available to common on a dividend, and that leaves us with less. So I don’t mind if the dividend payout ratio is 80%.

Yield as small as that, not worth it to me. What is a yield as small as that, not worth it to me.

What is interesting to me about CHH trading at $111. Balance sheet? No. That’s not interesting to me. But I like the profit margin at 32%.

And then what I really like is 40% of the floating stock has been shorted.

So the way to play CHH is to figure out when their next earnings are coming and buy a call spread just slightly out of the money that if this thing beats, if CHH beats on earnings, if they have good news, stock could pop based on 40% short of float, and those options could become quite handsome.

So that’s the way to play it. Would I buy this stock? Would I buy CHH at $111? No.

40% of the shares are – of the outstanding shares – were held by insiders. So you’ve got a kind of a restricted float there, and 40% of that is shorted. Yeah. This is the kind of options play that I like to buy and look for a pop, a short covering pop, could be a big one with CHH.

And that’s how I play CHH. I wouldn’t buy it. I’d look for an earnings pop. I’d look for some out of the box good news, and the stock jumps.

And you play with a call spread. That’s it for this week. I’ll catch you guys next week. Cheers.