BofA Flags Rising Risks For Gaming And Lodging Firms As Valuations Tumble

BofA Securities analyzes the extent of tariffs and the macroeconomic situation’s effect on the earnings of gaming and lodging companies.

Since BofA’s previous report on April 1, stocks in the lodging and gaming sector have dropped 11% % -25 %, underperforming the S&P 500's 16% decline.

Rising tariffs have significantly increased recession risks, with the sector now pricing in an 85% % -100 % chance of a downturn.

Investor concerns have escalated from market correction to a potential full-scale recession. A tariff-driven slowdown could cut sector revenues by 2%–4% and EBITDA by 3%–8%.

Recessions differ in nature, but the past three saw average peak-to-trough GDP drops of 5.1% and 10% in RevPAR.

According to the analyst, sub-sector sensitivity varies, with regional gaming and skiing less affected, while hotels and timeshares are more exposed.

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Earnings risk is highest for gaming operators and lodging REITs due to their high operating leverage. COVID and GFC downturns lasted about 67 days; current declines are 55 days in, said the analyst.

A 1% GDP decline could reduce hotel RevPAR by 2%–4%, broader sector revenue by 2%–4%, and EBITDA by 3%–8%.

Tariffs are projected to impact GDP by 1%–1.5%, amplifying pressure on hospitality earnings.

Early data from Apple Hospitality REIT Inc APLE signals underperformance, with potential RevPAR guidance cuts of 2% to 3% and flat growth for the U.S. in 2025.

Domestic gaming stocks are currently trading at notably low valuations, with 2025 EBITDA multiples at 6.5x and free cash flow yields at 15%, while operating companies are at 6.3x and 20%, respectively, said the analyst.

These figures sit one standard deviation below long-term averages, hitting levels last seen in 2022 and even lower than in 2016 and 2018.

Lodging C-Corps are also below historical norms, except for Hilton Hotels Corporation HLT, which still trades at a premium.

Lodging REITs have dropped to valuation lows only previously observed during the COVID-19 and Global Financial crises.

Meanwhile, timeshare valuations are also depressed, and Vail Resorts Inc MTN is now trading at its lowest multiple since 2011.

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