Barclays' 'Ratings Reset' On U.S. Lodging Stocks

In a report rolled out Wednesday, Barclays analysts Felicia R. Hendrix and Anthony F. Powell looked into the U.S. Lodging industry after the second-quarter earnings season. Now that the commotion has settled, the experts are left asking themselves if the fact that only three out of the 14 lodging companies in their coverage universe -- Hersha Hospitality Trust HT, Belmond Ltd BEL and Extended Stay America Inc STAY -- were able to report 100 percent “clean quarters while maintaining or raising guidance” is a mere coincidence.

Bulls Vs. Bears

The report questions if factors like weather, renovation disruption and lower business travel in May were one time problems, “or, rather, early signs of the vulnerability of a later stage lodging cycle?”

Bulls think steady GDP growth, increasing group demand and low supply “should drive moderate RevPAR growth and stock performance for several years to come and the 2Q15 challenges were a blip.”

Bears’ pessimistic view is based on a narrowing supply/demand gap, a slowing RevPAR growth rate and the threat posed by potential market disrupters, including Airbnb.

Ratings & Recommendations

After the recent decline in lodging stock prices, a few entry points became available. Barclays continued to recommend Hilton Worldwide Holdings Inc HLT, Belmond, Extended Stay America, Chatham Lodging Trust CLDT and Pebblebrook Hotel Trust PEB with Overweight ratings.

The analysts upgraded Sunstone Hotel Investors Inc SHO and DiamondRock Hospitality Company DRH from Equal-Weight to Overweight.

On the other hand, they downgraded Starwood Hotels & Resorts Worldwide Inc HOT, Marriott International Inc MAR, Host Hotels and Resorts Inc HST and RLJ Lodging Trust RLJ from Overweight to Equal-Weight.

Finally, Hersha Hospitality Trust and LaSalle Hotel Properties LHO remained Equal-Weight rated, while Choice Hotels International Inc CHH maintained an Underweight recommendation.