Pent-up travel demand fueled the post-COVID recovery of hotels last year. However, the COVID situation in China and a possible recession could impact business this year even though travel demand is currently resilient. Keeping in view the uncertain demand backdrop, we haveNYSE: HLT), Wyndham (NYSE: K), and MGM Resorts (NYSE: MGM) against each other to choose the most attractive hotel stocks according to Wall Street analysts.
Hilton (NYSE: HLT)
Hilton, the leading hospitality company, has 19 top brands, more than 7,100 properties and more than 1.1 million rooms in 123 countries.
Hilton impressed investors with impressive Q4 2022 earnings. System-wide comparable RevPAR (a key metric used in the hospitality industry that indicates revenue per available room) grew 24.8% compared to the prior-year quarter on a currency-neutral basis. RevPAR also increased by 7.5% from Q4 2019.
Hilton expects its 2023 RevPar to grow between 4% and 8%, driven by continued growth across all segments and an easier comparison with Q1 2022 that was impacted by Omicron. The group also anticipates “meaningful improvements across Asia” and strong growth in US urban markets due to continued recovery in the travel business.
Still, the company cautioned “we expect like all segments that you will see some plateauing in the second half of the year as a result of the slower macro environment. But we still feel great about it.”
Overall, Hilton is optimistic about the road ahead and claims more rooms under construction than its major rivals. Its pipeline includes more than 416,000 rooms, half of which are under construction.
Is HLT Stock a Good Buy?
Wall Street has been sidelined about Hilton, with three Buy and nine Hold consensus ratings based on Hold. The average HLT stock price target of $150.73 implies 2.4% upside potential after the stock is up 16.5% so far this year.
Wyndham Hotels & Resorts (NYSE: WH)
Wyndham is one of the world’s leading hotel franchisors with approximately 9,100 hotels under 23 brands in 95 countries. The company has emerged as a strong player in the mid-level segments of the economy and housing industry.
Following the easing of restrictions, Wyndham recovered from the COVID-induced downturn faster than many of its peers as 70% of its business is from leisure travel and 30% is dependent on business travel. Furthermore, within business travel, the company has 70% exposure to bookings related to blue-collar workers, helping drive demand for mid-tier accommodation across the economy.
In Q3 2022, Wyndham’s global RevPAR increased 12% (constant currency) on a year-over-year basis and was up 11% from 2019 levels. Wyndham is scheduled to announce its Q4 2022 earnings on February 15. Analysts expect the company’s adjusted EPS to decline 10% to $0.62.
Last month, Jefferies analyst David Katz downgraded hospitality industry bellwester stock Marriott (Nasdaq: March) and to hold Hilton from buy, citing a “limited” upside to earnings and valuation. The analyst expects the balance sheets of both these companies to be under pressure due to a slowdown in economic activity later this year, despite the post-COVID recovery continuing to strengthen.
Katz, however, is optimistic about Wyndham because of its capital-lite, franchising model. Katz maintained a buy rating and $82 price target on Wyndham.
Is Wyndham Stock a Buy, Sell or Hold?
Wyndham earns Wall Street’s Strong Buy consensus rating based on four Buys and one Hold. The average WH share price target of $88 suggests upside potential of approximately 15%. Shares are up more than 7% since the beginning of the year.
MGM Resorts (NYSE: MGM)
MGM Resorts operates 32 hotels and gaming venues globally. Its portfolio also includes BetMGM (a 50-50 joint venture with Entain Plc).GB: ENT)), which provides sports betting and online gaming in North America, and LeoVegas AB, a betting and online gaming subsidiary.
Earlier this week, MGM posted market-beating revenue for the fourth quarter of 2022 due to strong performance from its Las Vegas Strip resorts. It also reported a loss per share above estimates due to the impact of COVID restrictions on MGM China.
Looking forward, MGM expects to benefit from continued strength in Las Vegas, improving Macao business, and strong growth potential for BetMGM.
Following the Q4 print, David Katz raised the price target for MGM stock slightly from $57 to $59 and reiterated a Buy rating. “The upside in the quarter, along with a tight focus on capital allocation efforts, should be positive for both stocks,” Katz said.
The analyst believes that the Las Vegas market will pick up and Macau’s business will recover. Katz also believes that the company’s confirmation that it is no longer pursuing an acquisition of Entan removes a “potential headwind from another ENT bid” and could send shares higher.
What is the target price for MGM stock?
Wall Street’s Strong Buy consensus for MGM is based on nine buys and two holds. At $54.68, the average MGM price target has about 25% upside from current levels. Shares have gained 31% year-to-date.
While travel demand is not currently showing any significant impact of macro headwinds, there are concerns that hotels may face some headwinds in the second half of the year. Currently, analysts are more optimistic about MGM Resorts and see more upside potential in the stock than Hilton and Wyndham.