Attention travelers: international tourist arrivals worldwide are expected to hit 1 billion in 2012?a major milestone?with an annual growth rate of 3 percent to 4 percent, according to the World Travel & Tourism Council (WTTC). We?re finally seeing a rebound from the two-year slide during 2008-2010 that was triggered by the global financial panic.
A major beneficiary of the increase in US and international tourist travel is the hotel and lodging industry. In the first quarter of 2012, three key industry metrics were all up: occupancy levels, average daily room rates, and revenue per available room (RevPAR).
There are 12.7 million hotel rooms worldwide, close to 70 percent of them in the US and Europe, and supply is starting to outstrip demand. As a result, room rates have swung back to profitable levels, and this is expected to last at least through 2013.
For 2012, Smith Travel Research expects the supply of rooms to inch up 0.8 percent versus a 1.3 percent rise in demand. In 2013, supply is estimated to rise 1.4 percent, but demand will jump 2 percent.
Moreover, an easing in US visa procedures, the European Soccer championships in Poland and the Ukraine, followed by the Olympic Games in London will further boost tourism in 2012 in the US and Europe.
Longer term, the major growth drivers are still in place: globalization, a growing middle class in developing countries, and an aging, relatively affluent population in US, Europe and Japan. Consequently, portfolio exposure to travel/tourism industry makes sense, especially since this is a key global industry.
Total travel/tourism (both domestic and international) are 9 percent of the world?s gross domestic product (GDP), versus 8.5 percent for the automotive industry and 11 percent for banking, according to the consulting research firm Oxford Economics.
Even after the recent rebound, certain hotel stocks remain relatively cheap, and sport eye-catching dividend yields. Here?s a closer look at hotel operators with impressive RevPAR growth and a bullish outlook.
A WYNing Hand
Wyndham Worldwide (NYSE: WYN) operates 7,200 hotels for the world?s budget-conscious travelers?Wyndam, Super8, Howard Johnson, Days Inn, Microtel, etc.?and it also offers time shares, rental and exchange services, thereby accommodating a broad array of consumer and business customers.
Adjusted earnings for first-quarter 2012 were $0.60 per share, beating estimates by 3 cents. Revenue per available room was up an impressive 9 percent. Meanwhile, the vacation ownership segments continued to improve and further gains appear to be in store this year. Based on fewer shares and lower interest expense, analysts upped their 2012 earnings per share (EPS) forecast to $3.08.
Even after a rally of more than 30 percent so far this year, the stock is trading at a reasonable 14 to 15 times the forward price-to-earnings (P/E) ratio and 3.5 times the price-to-book (P/B) ratio, compared to the averages of 29.8 and 4.5 for peers in the hotels and motel group, respectively.
WYN has an equity summary score of 8.2 out of 10, indicating a Bullish Outlook. Our target price is $57.
London Calling
InterContinental Hotels (NSDQ: IHG), the world?s biggest hotelier, is looking for a further boost from?the London Olympic Games this summer, after reporting a 5 percent rise in first-quarter profits thanks to strong growth in?China?and?the US, its two biggest markets.?
Growth in global RevPAR was 7 percent, with?the US up 7.6 percent and China up 11.9 percent. InterContinental Hotels? outstanding performance (98th percentile among the Russell 3000 companies), coupled with its moderate risk (43rd percentile), indicates high intrinsic value. The stock has an equity summary score of 8 out of 10 for a Bullish Outlook.
Some Like it HOT
Starwood Hotels & Resorts Worldwide (NYSE: HOT) operates 1,103 primarily luxury and upscale properties (owned or managed) in nearly 100 countries. Properties include W, Westin, Le Meridien, St. Regis and The Luxury Collection.
In 2012, we forecast same-store RevPAR will increase between 5 percent and 9 percent for the company-operated hotels, with a slightly smaller increase for the owned hotels. We foresee stronger performance in the Asia/Pacific region, mixed results in Europe, and healthy RevPAR in North America.
In 2013, analysts expect the company?s earnings to rise about 13 percent, as its diversified exposure to some of the world?s fastest-growing markets allows it to capture an above-average share of the industry?s continued rebound.
Starwood is definitely strengthening its position as the leading hotel operator in the?Middle East?and North Africa?(MENA), with a regional portfolio of nearly 70 hotels and a pipeline of 40 new properties.?
Starwood?s mid-market business, which includes Aloft, Element and Four Points by Sheraton, is expected to open its 250th hotel in 2012, as 26 more hotels come on line this year. The majority of these will be in North America, bringing its total for this region to 175.?
Starwood?s shares are up about 19 percent so far in 2012, but still seem reasonably priced, due to a forward P/E ratio of 21 and a P/B ratio of 3.6, compared with averages of 29.8 and 4.5 for peers in the hotels and motels group, respectively. The stock has an equity summary score of 8.5 out of 10, a Bullish Outlook.
Greg Pugh, an income-investing expert, publishes a newsletter called Investing for Monthly Income at http://getrichinvestments.com
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