The Zacks Hotels and Motels industry faces challenges from rising costs, reduced travel from lower-income consumers, geopolitical tensions and ongoing economic uncertainty. However, industry participants are concentrating on growth strategies, including expanding their portfolios, converting properties, forging partnerships and enhancing loyalty programs. The industry has shown resilience through cost-cutting measures and digital innovations. Industry players, such as Marriott International, Inc. MAR, Hilton Worldwide Holdings Inc. HLT and Hyatt Hotels Corporation H, are likely to benefit from the factors mentioned above.

Industry Description

The Zacks Hotels and Motels industry comprises companies that own, lease, manage, develop and franchise hotels. Some vacation ownership and exchange firms are also a part of the industry. Several participants own, construct and operate resorts. Some companies develop lodges, villages and mobile accommodations, including modular, skid-mounted ones and central amenities that provide long-term and temporary workforce accommodations. Some industry players develop, market, sell and manage vacation ownership and associated products. Few hoteliers also offer studios, one-bedroom suites and accommodations to mid-market business and personal travelers.

3 Trends Shaping the Future of the Hotels & Motels Industry

High Costs Remain Worrisome: Industry participants are concerned about higher costs. Rising salaries, wages and benefits have been adding to labor costs. The hospitality sector continues to struggle with labor shortages, driving up wages and reducing service quality. Hotels are finding it difficult to hire and retain staff, leading to reduced capacity and operational challenges. Heightened geopolitical risks and persistent macroeconomic uncertainty are of concern to the industry. Increases in food and beverage, and non-operating costs, as well as increased renovation costs, are hurting the industry.

RevPAR & ADR Growth: According to the latest projections from CoStar Group and Tourism Economics, revenue per available room (RevPAR) is expected to grow 1.8% in 2025, as previously anticipated. However, the timing of this growth has shifted, with stronger performance anticipated in the first half of the year rather than the latter half. Conversely, ADR is expected to witness growth of 1.6% in 2025, whereas occupancy is expected to be 63.1%. However, reduced travel from lower-income consumers, as well as geopolitical tensions, remain concerning for the industry.

Digitalization to Drive Growth: Hotel owners are focused on maintaining the balance between maximizing hotel profitability and driving guest satisfaction. To this end, hoteliers have leveraged mobile and web check-in and mobile key technologies. These hoteliers also increased the use of digital tools to strengthen infrastructure, grow online package sales, enable self-service bookings, make real-time offerings and enhance the overall customer experience. This and the emphasis on pricing optimization and merchandising capabilities will likely help hoteliers capture additional market share.

Zacks Industry Rank Indicates Dismal Prospects

The Zacks Hotels and Motels industry is grouped within the broader sector.

The group's Zacks Industry Rank, which is the average of the Zacks Rank of all the member stocks, indicates dull near-term prospects. The Zacks Hotels and Motels industry currently carries a Zacks Industry Rank #184, which places it in the bottom 25% of the 246 Zacks industries. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than two to one.

The industry's position in the bottom 50% of the Zacks-ranked industries results from a negative earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, analysts are gradually losing confidence in this group's earnings growth potential. Since Dec. 31, 2024, the industry's earnings estimates for 2025 have dropped 3%.

Before we present a few stocks that you may want to keep an eye on, let us look at the industry's recent stock-market performance and valuation picture.

Industry Outperforms the S&P 500

In the past year, the Zacks Hotels and Motels industry has outpaced the S&P 500 and outperformed the sector. Over this period, the industry has appreciated 17.5% compared with the sector's rise of 11.5%. The Zacks S&P 500 composite has rallied 17.1%.

Hotels & Motels Industry's Valuation

On the basis of the trailing 12-month EV/EBITDA, which is a commonly used multiple for valuing Hotels and Motels stocks, the industry is currently trading at 18.43X compared with the S&P 500's 17.59X. It is also below the sector's trailing 12-month EV/EBITDA ratio of 10.55X.

Over the last five years, the industry has traded as high as 91.27X and as low as 9.45X, with the median being at 17.26X, as the chart below shows.

3 Hotels & Motels Stocks to Watch

Marriott: The company witnessed robust demand in fourth-quarter 2024. Its global RevPAR increased 5% year over year, supported by a 3.2% rise in ADR and a 1.2% increase in occupancy. With global trends improving, the company expects the recovery momentum to continue. Attributes such as pent-up demand for all types of travel, the shift of spending toward experiences versus goods, sustained high levels of employment, lifting of travel restrictions and opening borders (in most markets) are likely to aid the company in the upcoming periods. The company expects global RevPAR to rise 2-4% year over year in 2025.

Marriott currently carries a Zacks Rank #3 (Hold). The company’s 2025 top and bottom lines are likely to witness year-over-year growth of 6.2% and 11.2%, respectively. MAR's shares have gained 13.3% in the past year. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Price and Consensus: MAR

Hilton: Strong demand for leisure travel, along with growth in business transient and group travel, continues to drive the company’s performance. Also, its focus on unit expansion, hotel conversions and loyalty programs bodes well. Owing to strong trends in leisure occupancy, and steady growth in business transient and group segments, Hilton expects 2025 RevPAR growth between 2% and 3%.

HLT currently has a Zacks Rank #3. The Zacks Consensus Estimate for Hilton’s 2025 EPS suggests growth of 11.1% from the year-ago period’s actual. HLT shares have jumped 30.9% in the past year.

Price and Consensus: HLT

Hyatt: The company has been benefiting from a gradual increase in demand, hotel openings and acquisition initiatives. Also, organic and inorganic growth initiatives, loyalty programs, and asset-light business model bode well.

H currently carries a Zacks Rank #3. The Zacks Consensus Estimate for Hyatt’s 2025 top line suggests growth of 4.9% from the year-ago period’s actual. H shares have declined 10.5% in the past year.

Price and Consensus: H

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Marriott International, Inc. (MAR) : Free Stock Analysis Report

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This article originally published on Zacks Investment Research (zacks.com).

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