Excerpt from CoStar
Hotel companies are expected to tout strong performance in the second quarter, but analysts say executives also will have to detail plans to protect their businesses in the event of a recession.
Hotel brands and real estate investment trusts broadly are expected to have surpassed Wall Street estimates for performance in the second quarter, but analysts say investors will be more interested to hear from executives during earnings reports about the companies' trajectories and strategies for what's ahead.
Michael Bellisario, senior research analyst at Baird, said the focal point will be on projections for next year and the severity of a potential recession.
“The big focus is macro and not even what's going on now. It's about later in this year and into 2023, which is always hard to see for travel because you know how quickly it can turn off and turn back on,” he said.
David Loeb, a former analyst with Baird and owner of Dirigo Consulting — which advises on capital markets, strategy and communications issues — said while he expects companies to tout the return of business and group travel along with strong leisure demand in the previous quarter, most questions from analysts will be centered around a potential recession in the near future.
“I think there's going to be all this discussion about how great everything is. And at the end of the day, investors are going to say, ‘Call us when you know we're in a recession because that's when we want to buy the stock.’ It’s going to go down more in the meantime,” he said.
Even if a recession were to hit, Loeb said hotel companies would likely remain optimistic since leisure demand will remain high and business and group travel demand still has room to grow.
“If we see [a recession], I suspect it will be relatively shallow. It may last a while, it may last a year just because the comparisons are really tough, but I think once we're in it, investors will start to look beyond it. They’ll know we’ll come out of it,” he said.
C. Patrick Scholes, managing director of lodging and leisure equity research at Truist, said he’d be surprised if hotel management teams give much color on a potential slowdown.
“There’s not a lot of visibility beyond say 30, 60 days, so it’s not like we have the next year of corporate bookings,” he said. “I think management teams will say, ‘Hey, based on what we know, for the next 60 days, things look strong,’ and that’s absolutely true.”
The hotel industry isn’t uniformly strong right now, though, Scholes said. High interest rates, construction costs and supply-chain delays have led to a slowdown in hotel development and pipeline growth.
“What’s interesting is, that may not be necessarily recession-driven,” he said. “Just the fact that real estate development is slowing in general, whether it’s hotels or housing construction … that kind of stuff brings about a recession.”
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