News of successful trials for a COVID-19 vaccine has boosted hotel firms’ stock prices and valuations, but hoteliers need to remain focused on cash reserves, advisors caution.
GLOBAL REPORT—Reports of a potential COVID-19 vaccine with a 90% success rate in patient trials has boosted the share prices of hotel firms, but industry advisors said too many questions remain to shift strategy just yet.
Stock-price increases have jumped from historic lows in some cases on the announcement from medical companies Pfizer and BioNTech.
In share-price numbers as of 10 a.m. GMT, six hotel firms, among the world’s largest showed:
- Accor on Euronext Paris stock exchange trading at €28.89 ($34.27), an increase of 23.57% from the previous day’s low;
- Hilton on the New York Stock Exchange trading at $104.19, an increase of 12.23%;
- Hyatt Hotels Corporation on the New York Stock Exchange trading at $67.53, an increase of 19.82%;
- InterContinental Hotel Group on the New York Stock Exchange trading at $61.09, an increase of 10.71%;
- Marriott International on the NASDAQ stock exchange trading at $118.30, an increase of 13.87%; and
- Wyndham Hotels & Resorts on the NASDAQ stock exchange trading at $55.12, an increase of 6.68%.
Michael Bellisario, senior hotel research analyst and director at Baird, said in a note to clients that the “interim phase three update from Pfizer and BioNTech positively shifts the narrative and fundamental focus, and investors have begun to price in a clearer path to ‘the other side,’ especially with respect to timing.”
Baird, along with Hotel News Now’s parent company STR, compiles the Hotel Stock Index, which was up 16.6% Monday. Sub-indexes also showed improvement for hotel real estate investment trusts (+31.5%) and hotel brands (+12.6%).
“Based on Friday’s closing prices, (hotel real estate investment trust) shares were trading at approximately 15% to 30% discounts to our NAV estimates; after today, the range is approximately a 5% discount to a 10% premium, and 2022E EV/EBITDA multiples have increased more than two turns. Compared to early June prices (when reopening sentiment peaked), most stocks are still lower (median is -3%),” Bellisario wrote in his note to clients.
He added that for hotel brand companies, “implied 2022E EV/EBITDA multiples increased approximately 10% today, or about one-and-a-half turns.”
“Looking out to 2023, Hilton and Marriott are trading at 24x and 23x EPS, respectively. Compared to early June prices, the average Global Hotel Brand stock is 11% higher (with all stocks up),” he wrote.
Despite a buoy in the firms’ market capitalizations, Jileen Loo, senior director of international capital markets, hotels, at business advisory CBRE, said the priority for companies—whether REITs, hotel firms or independents—must be on the maintenance of cash reserves.
“They’ve been burning cash to maintain hotels from closure. Any additional boost in share values has to be kept in reserve, not deployed,” Loo said.
Sources added hoteliers are unlikely to quickly jump on the news, when questions remain over the latest vaccine developments.
“A lot of strategic thinking went into play in (the first quarter) when the pandemic started,” Loo said, adding that right now the good news is being absorbed as sentiment, not as an actual development.
James Chappell, global business director at business consultancy Horwath HTL, said everything could change again tomorrow.
“We could get news next week that we cannot get enough of (the vaccine). And is it safe? We are not out of the woods yet, and market improvement will not be a smooth upward curve, probably rather two steps forwards, one step back,” he said.
Beyond hotels, the travel industry also showed a marked stock improvement.
“Carnival (Corporation) cruise ships, EasyJet, are up some 30%, 40%. Yes, often from almost nothing to next to nothing, but it is an initial push,” Chappell said.
He added stock markets often are less an indication of the health of firms’ balance sheets and more of investor sentiment as to where the market will be in 12 to 24 months’ time.
Loo said while general investor sentiment suddenly looks more positive, many markets are now in lockdown.
“Headlines are often sensationalized, and that does not fare well for international investors as they do not see the differences between the first lockdown and the one now,” she said.
She added that while hotel industry valuations might be on the rise, that is largely not the case for the industries that provide them business guests.
“We still see business (demand) as being slower to recover. Every industry has been negatively affected,” she said. “We will return to a travel environment, but there are some meetings that will not come back.”