This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Rally in Hotel Stocks May Come Knocking

Hotel companies are doing everything right -- raising rates, filling rooms and boosting earnings guidance -- and yet shares continue to slide. A combination of economic anxiety and the outsized 2003 sector rally are to blame for recent underperformance, but the underlying fundamental trends are strong, and shares could be worth buying.

At the core of the bullish case is the fact that the hotel industry's recovery is switching gears, leading to higher profit margins and greater earnings growth in the second part of the year. During the first part of a recovery, hotels see occupancy rise as demand increases because of an improving economy. According to Smith Travel Research, an industry tracker, occupancy at all hotel rooms in the U.S. was 60%, with upscale hotels pushing closer to 70% -- the highest levels in two years.

"Fundamentally, the industry is sound. We're looking at seven weeks of double-digit growth in [revenue per available room]," said Jan Frietag, director at Smith Travel Research, noting the high occupancy rates. "What that implies is that hotels are full, and the next step, towards the end of 2004, is that we'll see an increase in room rate growth."

But as occupancy levels rise, filling rooms becomes more difficult and comparisons get tougher. That is happening now. Occupancy at all U.S. hotels during the week ended Aug. 7 rose just 1% year over year. With terror warnings, an uncertain economic outlook and InterActiveCorp (IACI), owner of Expedia, and (PCLN - Get Report) guiding earnings expectations lower, investors are growing worried that hotel stocks are overvalued and industry fundamentals are peaking.

This is why hotel stocks have fared so poorly over the last month. Since July 16, shares of Starwood Hotels (HOT - Get Report) -- which has raised guidance for the last three quarters while easily beating analysts' earning estimates -- are off 9.5%. As shares slid recently, Wall Street was raising its earnings expectations, with 18 analysts raising 2004 forecasts by an average of 16 cents. Expectations for 2005 are up an average of 21 cents.
1 of 3

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
HOT $62.03 1.40%
HLT $18.08 2.50%
IACI $40.46 0.10%
MAR $61.37 0.99%
PCLN $1,033.32 4.20%


Chart of I:DJI
DOW 15,914.74 -99.64 -0.62%
S&P 500 1,851.39 -0.82 -0.04%
NASDAQ 4,283.28 +14.5170 0.34%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs