MKM Partners Favors Asset-Light Lodging Stocks; Updates Ratings - (BEL) (CHH) (H) (HLT) (IHG) (MAR) (STAY) (WYN)

Leisure travel was strong in 2015/16, and MKM Partners believes that leisure trends will remain strong. Also, an improved economic outlook and potential tailwinds for corporate America opens up potential for an upside in corporate travel demand. However, the lodging cycle is getting rather old and supply growth continues to rise, therefore MKM favors asset-light, unit growth companies. MKM has updated several estimates to account for its current view of the segment.

MKM Partners analyst Christopher Agnew commented, "We are upgrading HLT and MAR to Buy (from Sell and Neutral, respectively). HLT (post-imminent spin) and MAR are growing rooms 6%-7% y/y. This compares to Neutral rated IHG (down from Buy) and CHH (up to Neutral from Sell) growing approximately 3%. We remain Buy rated on WYN (also ~3% unit growth) as we like timeshare in 2017. STAY is the exception given the completion of the multi-year renovation program in 1Q17 and the potential to be a major beneficiary of infrastructure spending initiatives. We are upgrading STAY from Neutral to Buy."

MKM Partners Chief Market Technician, Jonathan Krinsky, believes that Hilton Worldwide Holdings Inc. (NYSE: HLT) and Marriott International, Inc (NYSE: MAR) are breaking out. Krinsky believes that HLT looks poised to test late 2015 resistance and that the stock should ultimately be able to challenge its 2015 highs of around $31.

For MAR, Krinsky sees the stock challenging late 2015 resistance of around $80 and could ultimately challenge prior highs of around $85. Longer-term, MKM could look for MAR to move towards the $100 level.

Christopher Agnew continued in the note, "MAR and HLT have completed/about to complete major corporate actions (acquisition of HOT and separation of business into three, respectively). These actions have delayed share buybacks and so in 2017, we believe we will see pent-up acceleration in buyback activity. Both MAR and HLT valuations are in-line with historic ranges even though ROIC is 5X what it was ten years ago and unit growth 2x."

MKM Partners has moved Hyatt Hotels Corp. (NYSE: H) from Sell to Neutral and Belmond Ltd. (NYSE: BEL) remains Neutral, as they are considered by MKM to be asset heavy lodging stocks.

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