US hotel stocks could see slowdown in wake of terror attacks
It’s been a tough few months for the travel and leisure sector, having had to deal with the fallout from the blowing up of a Russian passenger aircraft over the Sinai last October, to a raft of terror attacks starting in Paris last November and spreading across the globe as cities from Cairo to Istanbul to Jakarta get targeted by extremist elements.
If this geopolitical uncertainty was confined to a single region then the likely effect could be negated by a displacement effect as consumers and tourists choose alternative destinations.
This unfortunately hasn’t been the case, with a consistent news flow of unrest and uncertainty rippling out across Africa, Asia and a good part of Europe, Against this backdrop it would not be unexpected to see a significant drop in occupancy rates when some of the major global hotel brands report their latest quarterly numbers next week, as investors look to Marriot (O:MAR), Starwood (N:HOT) and Hyatt (N:H) for their latest quarterly trading updates.
When Marriott announced it was buying Starwood Hotels last November for $12.2bn, a few eyebrows were raised given the number of different brands that each company had under their respective corporate umbrellas.
Since then the share prices of both have gone sharply south, coming as the announcement did in the aftermath of the terrorist attacks in Paris and Bamako.
This slide in share prices across the sector does raise concerns that management has hit the business cycle on its way down as revenues on a room basis start to slow down.
We’ve already seen evidence that slowing economic growth, not only in the US but more globally, is hitting earnings forecasts, and recent terrorist attacks certainly won’t have helped matters.
With Hyatt also set to report Q4 numbers later this week, the impressive gains seen in the respective share prices of the US hotel sector in recent years could find that some of the more elevated valuations could come down from the more executive style valuations to ones of a much more standard variety, as competition increases in the form of reduced room rates to keep occupancy rates at a constant level.
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