Hotel stocks plummeted in the early days of the pandemic, but many of them bounced back quickly. In this piece, we used TipRanks’ Comparison Tool to evaluate two hotel stocks: Wyndham Hotels (NYSE:WH) and Airbnb (NASDAQ:ABNB). A closer look at these stocks reveals reasons to be bullish on both.
The State of the Travel Industry
The pandemic was incredibly difficult for the travel industry, as widespread lockdowns almost instantly grounded planes and shuttered hotels. However, many travelers are back in the air and on the nation’s roads, and investors were quick to start grabbing up travel stocks again — even before the industry started to come back.
Some hotel stocks started rallying from the market trough in March 2020 and continued to climb throughout the year and into 2022. However, as 2022 wore on, the stock market as a whole started to tank, and hotel stocks also took the plunge.
One thing the travel industry had going for it was pent-up demand as people sought to scratch the itch they felt from being stuck at home for an extended period. Most experts agree that leisure travel has recovered much of the ground it lost, although business travel remains weak.
With corporate travel still below 50% of its pre-pandemic spending, Deloitte doesn’t expect business travel to recover to where it stood in 2019 for at least a couple more years. Unfortunately, the American Hotel & Lodging Association estimated that business travelers made up more than half of room revenue in the lodging industry in 2019. The organization expects business travelers to make up 43.6% of room revenue in 2022.
Another trend in the hotel industry is the growth of boutique hotels which are the fastest-growing sector of the hotel industry. IBISWorld estimates that the boutique segment of the hotel market will rake in $16.9 billion in revenue in 2022. It also estimates a 36.1% increase in the number of boutique hotels in the U.S. in 2022.
The home-sharing trend should also be addressed, given that Airbnb has brought it into the mainstream. Although the number of people using home-sharing platforms tumbled to 23.3 million in 2020, that number is expected to skyrocket in 2022 and 2023, rising to 68.2 million users by 2023.
In fact, data from M Science showed that 2022 has brought the strongest home-share spending ever. For example, home-share spending the week ending March 6 was up about 68% compared to the week ending March 6, 2019.
While not strictly a hotel stock, Airbnb is part of the travel industry, and like hotels, it offers short-term room rentals for travelers. The company’s platform connects property owners with those seeking room rentals. The current trends in home-sharing and boutique hotels show why a bullish view may be appropriate for the stock.
With about 72% of the home-share market, Airbnb dominates. Airbnb reported adjusted earnings of $0.56 per share on $2.1 billion in revenue for the June 2022 quarter, compared to the consensus estimates of $0.45 per share on $2.1 billion in revenue.
Airbnb’s revenue was up 73% since the pre-pandemic second quarter of 2019, and it reached a new record high for Nights and Experiences Booked at more than 103 million. The second quarter of 2022 was also the company’s most profitable second quarter ever with net income of $379 million. Overall, it’s difficult to find anything wrong with Airbnb’s second-quarter print.
Airbnb also looks attractive from a valuation standpoint. The company went public in December 2020, and over the last year, its P/E peaked at around 721 times in November 2021. As the stock market sold off in 2022, Airbnb’s P/E has plunged to around 61 times. The company’s P/E is higher than those of your typical hotel stocks, but it deserves a premium due to its dominance in the home-sharing segment of the market.
In addition to being the primary player benefiting from the growth in home-sharing, Airbnb has also added boutique hotels to its listings, tapping into the rapid growth specifically targeting that end of the lodging industry as well.
Overall, Airbnb is down 29% year-to-date but up 19% over the last three months, indicating a shift in momentum. However, a long-term view is generally better because it gives investors a greater potential to capture significant upside by ignoring short-term movements in the stock price. In particular, growth-oriented investors may be most bullish on Airbnb.
What is the Target Price for ABNB Stock?
Airbnb has a Moderate Buy consensus rating based on 12 Buys, 17 Holds, and one Sell assigned over the last three months. At $134.22, the average Airbnb price target implies upside potential of 6.8%.
Wyndham Hotels & Resorts
Wyndham Hotels & Resorts bills itself as the world’s largest hotel franchisor with 20 different hotel brands in every section of the value chain from discount to luxury to boutique offerings. Given that the travel industry is still coming back, this could be an attractive entry point for Wyndham, making a bullish view appropriate at this time.
In addition to Wyndham, the company’s hotel brands include Baymont, Days In, Howard Johnson, Ramada, and Super 8. The company has even delved into the boutique market with its Esplendor brand, something else it has going for it.
Wyndham is also posting strong earnings results. In addition to boosting its full-year guidance, Wyndham Hotels recorded adjusted earnings of $1.07 per share on $386 million in revenue, compared to the consensus numbers of $0.94 per share on $355.6 million in revenue for the second quarter of 2022.
Of note, the company reported $533 million in revenue for the second quarter of 2019, so its revenue is down compared to where it stood before the pandemic. However, Wyndham sold its Grand Rio Mar Resort, so it’s difficult to tell whether it has recovered to pre-pandemic levels.
Wyndham also reported a 23% year-over-year increase in revenue per available room, which rose to $55.57 for the U.S. and $44.28 globally. The company said about 80% of that increase was due to stronger pricing power, while the remaining 20% was due to higher occupancy levels. Clearly, Wyndham Hotels has the brand strength to be able to pass along its higher costs to customers through higher room rates.
The company’s P/E also looks attractive right now relative to history. With a current P/E of around 18 times, Wyndham is arguably in a better position than Airbnb in terms of valuation. Over the last year, the hotel chain operator’s P/E has declined from around 27 times, a number it has tested multiple times this year.
Is WH a Good Stock to Buy?
Wyndham Hotels & Resorts has a Strong Buy consensus rating based on four Buys, and one Hold assigned over the last three months. At $86.70, the average Wyndham Hotels & Resorts price target implies upside potential of 29.8%.
Conclusion: WH Stock Has More Appealing Valuation than ABNB Stock
The analysis of Airbnb and Wyndham reveals that both companies are positioned to perform well as the travel industry completes its recovery from the pandemic. Airbnb is clearly back to pre-pandemic levels, while Wyndham is either there or close behind because its recent asset sale obscures the comparison. However, if choosing only one of the two, Wyndham’s valuation looks more appealing.
Additionally, both companies are repurchasing their shares, with Wyndham Hotels buying back $142 million worth of shares during the second quarter and Airbnb announcing a $2 billion buyback program. As an added bonus, Wyndham also paid a cash dividend of $0.32 per share in the second quarter.