Jefferies analysts have upgraded lodging giants Marriott and Hilton to Buy from Hold. They are confident “lodging recovers to a new normal” that will bring “growth, cash flow and capital returns.”
Bruce Bennett/Getty ImagesJefferies has upgraded Marriott International and Hilton Worldwide Holdings to Buy, confident “lodging recovers to a new normal” that will bring “growth, cash flow and capital returns.”
The firm previously had both lodging companies at a Hold.
“Both are anchored by proven management teams and business models which we have confidence will recover,” states the report dated Friday.
Marriott (ticker: MAR) and Hilton (HLT) released their second-quarter earnings recently. Although they had very difficult quarters due to the pandemic—both had negative earnings as revenue plunged—there were some hopeful signs.
Marriott, for example, noted that its operations in China have shown a strong recovery.
Hilton CEO Christopher J. Nassetta said in a statement that “as restrictions are lifting and properties around the world are reopening, we are seeing improved occupancy.”
In the Jefferies research note, analysts David Katz, Khoa Ngo, and Cassandra Lee observed, “We believe the Street will increasingly seek high-quality laggards as the economy recovers.”
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Hilton’s stock is down about 23% year to date, compared with a gain of 4% for the S&P 500 index, a broad measure of the market, and Marriott’s shares have fallen about 35%.
The Jefferies analysts noted that they consider “the cash-generating characteristics of the low-capital business models as particularly compelling.” Both companies generate a lot of fees for managing properties rather than owning them.
“Given the refinements and efficiencies, we expect both can capture profitability and cash flows equivalent to prior peaks,” they added.
Early in the pandemic, both companies suspended their dividends and share buybacks to preserve capital. The Jefferies analysts, however, note that “the key catalysts for outperformance are primarily the resumption of capital returns as a new normal operating environment returns.”
Marriott stock was at $96.52 Friday morning, up slightly in early trading, while the overall market was barely in negative territory as well.
Hilton stock was up about 0.5% to around $86.
Write to Lawrence C. Strauss at lawrence.strauss@barrons.com
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Buy Marriott and Hilton Stock to Bet on a Lodging Recovery, Say Analysts - Barron's
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