They have the strength to withstand the coronavirus pandemic that has hammered their business, and they will ultimately come back, he said.
Marriott recently traded at $97, up 0.5%. The stock has dropped 36% year to date. Hilton recently traded at $86.50, up 1.2%. It has slid 22% so far this year.
“Both [companies] are anchored by proven management teams and business models which we have confidence will recover,” Katz wrote in a report cited by Barron’s.
“We believe the Street will increasingly seek high-quality laggards as the economy recovers.”
Katz sees “the cash-generating characteristics of the low-capital business models as particularly compelling.”
So, “given the refinements and efficiencies, we expect both can capture profitability and cash flows equivalent to prior peaks,” he said.
What could trigger an ascent in the stocks? “The key catalysts for outperformance are primarily the resumption of capital returns as a new normal operating environment returns,” Katz said. Both companies have suspended their dividends and share buybacks.
He raised his share-price target for Marriott to $125 from $88 and for Hilton to $101 from $72.
Morningstar analyst Dan Wasiolek offered kind words for Marriott and Hilton in commentaries this month.
“While Marriott’s demand is set to underperform lower-price peers in 2020, green shoots in demand are emerging, supporting our stance of a full recovery in travel demand over the next few years,” he wrote.
And, “we maintain our view that Hilton’s brand intangible asset (the main source of its narrow moat) will strengthen over the next several years.”