Goldman Sachs analyst Lizzie Dove downgraded the outlook for companies in the tourism sector due to weaker consumer demand and geopolitical uncertainty.
As a result, the 2025 RevPAR projections are reduced by approximately 125 basis points. Key challenges include reduced demand from Canada and reduced government travel, both of which are expected to negatively impact U.S. RevPAR.
Although the recession case is not fully taken into account, the probability in the US is 45%. The focus is on companies with light assets, global exposure and less reliance on US resorts, as the reduction in IMF and non-REPAR fees has not yet been priced in, the analyst said.
In a more volatile macro environment, stocks with greater global diversity, lower exposure to US resorts, business models with light assets and stronger non-RevPAR and ancillary revenue prospects are preferred.
C-Corps hotel companies have shifted to fee-based and asset-light business models over the past decade, which have shown resilience during downturns, as franchise revenues tend to outperform ownership/lease or timeshare revenues.
Goldman Sachs upgraded shares of Choice Hotels International Inc from Sell to Buy and lowered the price forecast from $141 to $138. The upgrade was due to its defensive position, mainly due to its franchise revenue structure and strong balance sheet, which makes it more resilient amid economic uncertainty. CHH is less affected by the current macroeconomic challenges compared to other U.S. lodging companies, with most of its customers coming from the U.S.
At the same time, it downgraded shares of Hyatt Hotels Corporation from Neutral to Sell and lowered the price target from $150.00 to $110.00. Hyatt exhibits higher macro sensitivity, which is driven by factors such as a larger share of management contracts, significant exposure to China and a more limited growth pipeline under construction.
The same was done for the shares of Hilton Worldwide Holdings and Marriott International Inc. Both are recommended from Buy to Neutral.
Both companies have strong business models with resilient balance sheets, but their valuations remain high compared to historical cycles (2016-2019) and consensus estimates, especially for IMF and non-REVPAR pay, are considered overly optimistic.
