|Shares Out. (in M):||39||P/E||7.3||6.6|
|Market Cap (in $M):||702||P/FCF||8.3||7.5|
|Net Debt (in $M):||587||EBIT||0||0|
The entire lodging sector has been killed lately. While I am reticent to ever invest in a sector at its peak, prices today are already baking in at least a minor recession. While there are bumps in the economic road lately, mostly these are commodity and industrial related. Investors are throwing out some babies with the bathwater, namely lodging stocks. The sector is down 20% in just a month, with most down 40-50% from their peaks last year.
There are some hiccups in the space. Houston Revpar’s look weak due to the energy bust. New York and Miami will see sub 1% revpar growth for 2015, mostly due to a strong supply growth there, and a strong dollar curtailing the international traveler.
Earlier this month too, Lasalle Hotels (LHO) cut Q4 guidance from 1-3% revpar growth, to flat revpar growth. They are focused on 8 major cities, mostly gateway markets particularly impacted by a strong dollar. There also are specific reasons for problems there. They terminated a manager of 3 hotels in San Francisco, had a union uprising with their 2 major NYC hotels (claiming health and safety violations), and had to take dozens of rooms out of service to rip out walls and perform testing. Bad press didn’t help.
In any case, national industry demand is admittedly slowing. But so far, it appears demand continues to outstrip supply both for 2015 and 2016 and remains positive. While industry revpar growth in Q4 2015 appears slightly below forecasts at 4.8%, we do not see slowing growth as the end of the cycle yet. And at current multiples, lodging stocks are near trough valuations.
Here are forecasts from Smith Travel, PwC and PFK Hospitality from last summer.
While consensus appears to be that revpar will be up 4-5% for 2016 now, I deem growth above 3-4% to be still impressive, and probably all the industry needs to trade to better multiples. If the economy did accelerate though to these type figures, then the sector could trade up substantially.
Here is a pretty good chart from Chesapeake Lodging regarding supply and demand: