Zacks Industry Outlook Highlights: InterContinental Hotels Group plc and Morgans Hotel Group Co., 7 Days Group Holdings Ltd. and Wyndham

  • InterContinental Hotels & Resorts
  • 02.07.11
Zacks Equity Research discussed the hotel industry, including: InterContinental Hotels Group plc (IHG) and Morgans Hotel Group Co. (MHGC).

The stock with Zacks No. 1 rank (strong buy) is 7 Days Group Holdings Ltd. (SVN) and Wyndham (WYN).

Zacks believes the hotel industry has begun to turn around. It expects this trend of positive demand growth to continue in 2011 and beyond.  According to data from Smith Travel Research, a leading information and data provider for the lodging industry, the U.S. hotel industry reported single-digit increases on all three key performance measurements - occupancy level, ADR and RevPAR - during the week of January 16-22, 2011.

Comparing the operating metrics with the prior-year period, the industry's occupancy increased 6.5 percent to 49.8 percent.  As a result, RevPAR rose 9.3 percent to $47.99.  The week ended with a 2.6 percent rise in RevPar to reach $47.99 at the end of the week.  Moreover, supply and demand are likely to have grown 2.2 percent and 6.6 percent, respectively, in 2010.

Smith Travel Research projects that the hotel industry will end 2011 with increases in all three key metrics.  The expected growth is 1.4 percent for occupancy to 57.9 percent, 3.9 percent for ADR to $101.55 and 5.3 percent for RevPar to $58.75. Both supply and demand are projected to rise 1.1 percent and 2.5 percent, respectively.

The operating environment in the international market is better, propelling hoteliers to grab bigger shares of the overseas pie.  Hotels in the Asia-Pacific region experienced increases on all three key performance metrics for year-end 2010, according to data from Smith Travel Research.  The region's occupancy, ADR and RevPar increased a respective 8.9 percent, 11.4 percent and 21.3 percent to 66.0 percent, $132.80 and $87.69.

The hoteliers are also focused on rebalancing their portfolios by increasing contributions from managed and franchised hotels.  This fee-based business is attractive as growth is powered by multiple sources-RevPAR growth, unit additions and incentive fee escalation.  The business is also capital efficient as the owner/developer partners provide the capital and the company then earns a fee by managing/franchising the property.

Currently, there are a number of stocks in the hotel industry universe with a Zacks  No. 2 rank (buy).  These include InterContinental Hotels Group plc (IHG) and Morgans Hotel Group Co. (MHGC). 
 
Zacks believes companies such as Wyndham (WYN) are better positioned as they are likely to benefit from their repositioning as a more fee-for-service-based business.  Marriott and Starwood should also benefit from their global pipeline.


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