By Bill Peters
Marriott and Hilton face the prospect that a broader recession could threaten business in Europe as well as fee income, Citigroup analysts say
After cashing in on the revenge travel boom, hotel operators Hilton Worldwide Holdings Inc. and Marriott International Inc. now face the prospect of a broader recession that could threaten business in Europe as well as commission revenue, said said Citigroup analysts.
Company analysts downgraded Hilton (HLT) and Marriott (MAR) to buy neutral in a note late Tuesday. Shares of Hilton ended down 1.5% on Wednesday. Marriott lost 2.3%.
The downgrades add to analyst concerns about rising prices and their impact on the resurgence of the travel industry after two years of pandemic restrictions. Wolfe Research, in a note last week, said travel demand was “likely to moderate” as the economy slows and downgrades travel planning websites Booking Holdings Inc. (BKNG), Expedia Group Inc. (EXPE) and Tripadvisor Inc. (TRIP).
Citi analysts echoed that sentiment in their Tuesday note.
“Citi economists predict that the United States will enter a recession in [the second quarter of 2023]“, the analysts said. “At this point, the slowdown is considered relatively mild, but the probability of a synchronized global slowdown is increasing (now estimated at 50%).”
Hilton and Marriott both had more than 200,000 rooms under construction, analysts said, noting that while both are well-equipped to weather an economic downturn next year, there are potential weak spots.
Analysts said that while Hilton’s leased properties represent “a relatively small contributor to overall earnings (approximately 8% of cash flow from operations on a normalized basis), we note that the bulk of the exposure relates to the Germany and the United Kingdom, which are considered to be in recession or entering recession.
They added: “Relatively unfavorable rental structures for these properties can have an outsized impact on earnings.”
Marriott, meanwhile, benefited from credit card fees, which analysts said accounted for 15% of its fee revenue. But, they noted, “With U.S. credit card balances to nominal income approaching pre-pandemic levels and loans growing at a high rate, growth in this segment may slow.”
Hilton stock has fallen 13% so far this year, with Marriott down 4% over the period. By comparison, the S&P 500 has fallen 16% since the start of the year.
-Bill Peters
(END) Dow Jones Newswire
12-14-22 1805 ET
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