3 Stocks Worth Watching in a Promising Hotels & Motels Industry

The Zacks Hotels and Motels industry is experiencing growth in occupancy, ADR, and RevPAR, with demand outpacing supply in Q1 2025; however, CBRE has revised its 2025 outlook downward due to a softer economic forecast and higher inflation, now projecting a 1.3% RevPAR increase. Despite cost concerns and macroeconomic uncertainty, the industry maintains a favorable Zacks Industry Rank of #88, and companies like Soho House (SHCO), Marriott (MAR), and Hilton (HLT) are focusing on strategic initiatives, expansion, and loyalty programs to drive growth, with SHCO expected to see an 81.1% surge in its 2025 bottom line.

Analysis

The Zacks Hotels and Motels industry demonstrated positive momentum in the first quarter of 2025, with demand outpacing supply, leading to a 0.4% year-over-year increase in occupancy, a 1.9% rise in Average Daily Rate (ADR), and a 2.2% improvement in Revenue Per Available Room (RevPAR). Despite this strong start, CBRE has revised its full-year 2025 U.S. hotel industry outlook downwards, now anticipating a 1.3% RevPAR increase (down from 2%) due to a softer economic forecast and higher projected inflation, although it maintains that the sector will remain resilient, buoyed by robust group and business travel, a weaker U.S. dollar, and more affordable airfares. Key industry trends include a strategic focus on digitalization—leveraging mobile technologies and digital tools to enhance guest experience and optimize profitability—and persistent concerns over rising operational costs, particularly labor shortages driving up wages, alongside higher food, beverage, and renovation expenses, compounded by geopolitical risks and macroeconomic uncertainty. The industry currently holds a favorable Zacks Industry Rank of #88 (top 36%), reflecting a positive aggregate earnings outlook. Over the past year, the industry has appreciated 11.7%, outperforming the S&P 500's 9.3% rally, and trades at a trailing 12-month EV/EBITDA multiple of 16.68X, slightly above the S&P 500 (16.39X) and its own 5-year median (17.40X). Specific company highlights include Soho House (SHCO), which reported an 8% YoY revenue increase and strong adjusted EBITDA growth in Q1, carries a Zacks Rank #1 (Strong Buy) with an 81.1% projected surge in its 2025 bottom line. Marriott (MAR) and Hilton (HLT), both Zacks Rank #3 (Hold), are benefiting from strong leisure demand, global booking trends, and strategic emphases on expansion, digital innovation, and loyalty programs, with projected 2025 bottom-line growth of 8.3% and 10.5% respectively.

Key Decisions for Investors

• Given the industry's positive Zacks Rank and recent outperformance, investors could consider targeted allocations, particularly towards companies like Soho House (SHCO) which exhibits strong growth signals and a Zacks Rank #1.
• Closely monitor evolving macroeconomic conditions, inflation data, and labor market trends, as CBRE's revised 2025 outlook suggests potential moderation in growth despite current resilience.
• Evaluate companies on their adoption of digital technologies to enhance operational efficiency and guest satisfaction, and the strength of their loyalty programs, as these are highlighted as key drivers for major players like Marriott and Hilton.
• Assess individual stock valuations carefully, noting the industry's current EV/EBITDA multiple relative to historical levels and the broader market, to identify opportunities with favorable risk-reward profiles amidst ongoing cost pressures.