In a recent report, analysts at MLV & Co gave their monthly update on the lodging industry, including a list of their top picks in the space for investors. They believe that the lodging industry is beginning the late stages of a 10-year cycle similar to previous cycles in the 1990s and early 2000s.
Lodging Index Performance
MLV’s Lodging Stock Index fell 6.2 percent in January, significantly underperforming both the S&P 500 (down 3.1 percent) and the U.S. REIT Index (MSCIUSREIT INDEX [INDEX: RMZ]) (up 6.6 percent). Chatham Lodging Trust CLDT 1.36% was the leading performer in MLV’s index in January, up 7.5 percent for the month. Starwood Hotels & Resorts Worldwide Inc HOT 1.23% was the worst performer, down 11.2 percent in January.
Valuations
Based on consensus estimates for 2015, REITs are currently trading at 1.2x their long-term average forward EBITDA. Analysts believe that these high valuations are justified, though, given the low interest rate environment and overall strength of the sector.
C-corps are currently trading 2.3x above their historical EBITDA multiples and 4x above long-term average P/E multiples.
Strong Demand
Analysts estimate that corporate transient and leisure volumes are now at all-time highs. Group volumes remain about 4.2 percent below previous peak levels. Real rate levels remain slightly below prior peak levels in all three segments.
Outlook And Stock Picks
Analysts believe that the current cycle still has plenty of upside left. “As we are progressing through the lodging cycle, rate growth will drive the next leg of expansion, which will fuel margin growth, earnings beats, and guidance raises.”
MLV & Co lists its top sector picks as:
Starwood
Ashford Hospitality Trust, Inc. AHT 2.27%
Summit Hotel Properties Inc INN 0.3%
DiamondRock Hospitality Company DRH 2.06%
RLI Corp. RLI 1.43%
Strategic Hotels and Resorts Inc BEE 2.93%
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