Zacks

3 Hotel Stocks Set to Trump Earnings Estimates in Q2

Zacks Equity Research
Updated

First-quarter 2017 ushered in good news for the U.S. hotel industry with solid demand supporting modest growth in both occupancy and average daily rate (ADR). Revenue per available room (RevPAR) also increased 3.4%.

Rising employment, higher real income, and increased household net worth has reinforced consumer confidence and sentiment. This has resulted in a steady rise in business and leisure travel, and higher transaction volumes, which most likely continued in the second quarter.

Negative sentiments related to traveling to and from the U.S., a decline in international inbound travel, and a strengthening dollar are acting as the major spoilers for the domestic hotel industry. Yet, it will be reasonable to take a favorable view of the lodging industry’s supply-demand fundamentals given the improving U.S. and global economic outlook.

Particularly, confident consumers bode well for hotels despite the surge of new inventory in the marketplace. In fact, the Consumer Confidence Index climbed from May’s reading of 117.6 to 118.9 in June. We anticipate this positive sentiment to translate into higher consumer spending, which, in turn, should drive growth.

Moreover, hoteliers are trying every trick in the book to adapt to changing consumer expectations and entice them with their diverse portfolio of travel offerings.

Thus, though industry-wide headwinds continue to weigh on investor sentiment, hotel companies have good reasons to remain optimistic about this earnings season.

What to Expect?

The Zacks categorized Hotels and Motels industry belongs to the broader Consumer Discretionary sector. Per the latest Earnings Trends, as of Jul 12, a mere 5.7% of the Consumer Discretionary companies in the S&P 500 index have reported their results. Earnings and revenues for these companies have recorded year-over-year growth of 14% and 5.6%, respectively. In fact, they’re unblemished with earnings as well as revenue beat ratio of 100%.

However, overall earnings for the sector in second-quarter 2017 are expected to be down 1.6% year over year while revenues are likely to surge 7.8%.

While the readings suggest that the overall sector might not fare too well in this earnings season, there are still a few major hotel companies within the sector that are expected to reflect resilience. Therefore, this is the right time for you to select hotel stocks that have the potential to beat earnings in their upcoming second-quarter releases.

In spite of the headwinds, these stocks are well positioned in today’s market environment. We believe, earnings beat should further help these stocks gain investor confidence, thereby paving the way for stock price appreciation.

How to Screen the Outperformers?

Choosing the most rewarding stocks within the hotel industry might be difficult unless one knows the trick to shortlist. One way to do it is by picking stocks that have the combination of a favorable Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold), and a positive Earnings ESP.  You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

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