Lodging Stocks Should Be In For A Strong 2017

Canaccord Genuity said in a note released Monday that lodging stocks will move higher in 2017 due to improving macroeconomic conditions. The firm sees a 10–15 percent upside to the group in 2017 on top of the nearly 20 percent gain notched up by the companies on the "Trump trade."

Economic Growth To Help REITs

Analyst Ryan Meliker, however, sees a pullback in the near term due to the recent run up. The analyst stated that his outlook is based on a one-time EBITDA multiple expansion, driven by continued expectation for accelerating economic growth in 2017 and 2018. This, according, to the analyst will drive lodging industry fundamentals and fund flows into the group.

Below-Par RevPAR Likely

Nevertheless, Canaccord Genuity sees supply growth impacting several major markets, such as New York, Houston, Dallas and Seattle; Forex headwinds impacting New York and Miami; and poor convention calendars affecting San Francisco and Atlanta. Accordingly, the RevPAR growth of many REITs may be well below industry averages.

Relative Performance To Be Wider

The firm also believes relative performance within the group is likely to be much wider than expected. The firm is of the view that geographically diversified platforms would shine in 2017, resulting in outsized returns for stocks such as Marriott International Inc MAR, Apple Hospitality REIT Inc APLE and Summit Hotel Properties Inc INN. The firm also favors REITs with particularly soft comps driven by renovations, as these would see outsized EBITDA growth, leading to relative multiple expansion. On that count, the firm prefers Sunstone Hotel Investors Inc SHO and DiamondRock Hospitality Company DRH. C-corps are expected to outperform, the firm added.

Ratings/Price Targets

• Ashford Hospitality Prime Inc AHP: Hold/$14.
• Ashford Hospitality Trust, Inc. ( AHT: Hold/price target raised to $7.50 from $6.
• Apple Hospitality REIT: Buy/price target raised to $22 from $20.
• DiamondRock Hospitality: Buy/price target raised to $13 from $12.
• Hospitality Properties Trust HPT: Hold/$30.
• Host Hotels and Resorts Inc HST: Hold/price target raised to $20 from $17.
• Hersha Hospitality Trust HT: Hold/price target raised to $22 from $20.
• Summit Hotel Properties: Buy/price target raised to $17 from $15.
• LaSalle Hotel Properties LHO: Hold/price target raised to $28 from $25.
• Marriott International: Buy/price target raised to $94 from $81.
• RLI Corp. RLI: Hold/price target raised to $23 from $21.
• Sunstone Hotel Investors: Buy/price target raised to $17 from $14.