The resort sector has witnessed high demand after the pandemic restrictions were lifted. Despite the challenges posed by various macroeconomic factors, travel and hospitality demand has remained strong. Amid soaring travel demand and a tight labor market, the resort sector is well-positioned for growth.

Amid this backdrop, it could be wise to buy fundamentally strong resort stocks, Marriott International, Inc. (MAR) and Hilton Grand Vacations Inc. (HGV). On the other hand, it could be wise to avoid Sonder Holdings Inc. (SOND) due to its weak fundamentals and poor growth prospects.

Before diving deeper into the fundamentals of these stocks, let’s discuss why the resort industry is likely to perform well.

After enduring a few challenging years due to the pandemic, the prospects of the hospitality industry are looking up. During the first quarter, U.S. hotels exceeded the first quarter of 2019 (pre-pandemic) RevPAR levels by 13%. With no restrictions on travel, more people are expected to go on vacation. The rise in travel demand is good news for the hospitality sector.

Moreover, business travel which got severely affected due to the pandemic is making a solid comeback. With companies opening their offices and remote working no longer mandatory, business travel is picking up pace. The rise in business travel will help the hospitality industry.

IHG Hotels & Resorts CEO Keith Barr said, “We’re on the road more now than we were probably in 2019.” According to Barr, business travel is being led by reconnecting with customers and developers. “It feels like the sustainability of demand in our sector is much, much more resilient,” he added.

The hotel industry in the U.S. is expected to surpass the pre-pandemic record with 1.3 billion occupied room nights in 2023. Moreover, the average hotel occupancy rate in the U.S. is projected to be 63.8% this year, a significant rise from the record lows of 43.9% in 2020.

Let’s take a closer look at the fundamentals of the featured stocks.

Stocks to Buy:

Marriott International, Inc. (MAR)

MAR operates, franchises, and licenses hotel, residential, timeshare, and other lodging properties worldwide. The company operates through U.S. and Canada and international segments. It operates its properties under the JW Marriott, The Ritz-Carlton, W Hotels, St. Regis, EDITION, Bvlgari, Marriott, Sheraton, Westin, Four Points, and other brand names.

On June 6, 2023, MAR signed an agreement with Hiap Hoe Limited, through HH Properties Pte. Ltd. to bring the Aloft Hotels brand to Singapore. Following a strategic conversion, the 785-room hotel will open in the third quarter of 2023, becoming the largest Aloft hotel globally and the Aloft brand’s first entry into Singapore. The hotel will be MAR’s 14th hotel in Singapore.

The MAR’s Market VP for Singapore and Maldives, Gautam Bhandari, said, “With the site’s proximity to the city’s Central Business District as well as to local attractions and green spaces, the location is strategically placed to enable us to attract both business and leisure guests.”

On May 24, 2023, MAR announced it had signed an industry-first agreement with Rappi, Inc.. The deal allows Marriott Bonvoy members to connect their accounts with Rappi, unlocking exclusive benefits. This strategic alliance marks the first time a global hotel company joins forces with a Latin American tech company, demonstrating MAR’s dedication to innovative and guest-centric collaborations.

In terms of the trailing-12-month EBITDA margin, MAR’s 71.69% is 572.9% higher than the 10.65% industry average. Likewise, its 47.44% trailing-12-month net income margin is significantly higher than the 4.19% industry average. Additionally, its trailing-12-month gross profit margin of 79.93% is 126.7% higher than the 35.25% industry average.

MAR’s total revenues for the fiscal first quarter ended March 31, 2023, increased 33.7% year-over-year to $5.62 billion. The company’s adjusted net income rose 56.9% year-over-year to $648 million. Moreover, its adjusted EBITDA rose 44.7% year-over-year to $1.10 billion. Additionally, the adjusted EPS came in at $2.09, representing a 67.2% increase year-over-year.

Analysts expect MAR’s EPS and revenue for the quarter ended June 30, 2023, to increase 20.1% and 10.9% year-over-year to $2.16 and $5.92 billion, respectively. It surpassed the consensus EPS estimates in each of the trailing four quarters. Over the past year, the stock has gained 32.4% to close the last trading session at $184.23.

MAR’s POWR Ratings reflect this positive outlook. It has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.

It has a B grade for Momentum, Sentiment, and Quality. It is ranked #9 out of 22 stocks in the B-rated Travel - Hotels/Resorts industry. To see MAR’s ratings for Growth, Value, and Stability, click here.

Hilton Grand Vacations Inc. (HGV)

HGV develops, markets, sells, manages, and operates the resorts, plans, and ancillary reservation services under the Hilton Grand Vacations brand. It operates through Real Estate Sales and Financing and Resort Operations and Club Management segments.

On May 8, 2023, HGV’s Board of Directors approved a new two-year share repurchase plan of up to $500 million, which will begin after completing the existing $500 million repurchase program authorized in May 2022. As of April 30, 2023, around $83 million remains under the prior program. The share repurchase program will create shareholder value.

In terms of the trailing-12-month EBITDA margin, HGV’s 26.64% is 150% higher than the 10.65% industry average. Likewise, its 10.21% trailing-12-month net income margin is 143.8% higher than the 4.19% industry average. Moreover, its 14.37% trailing-12-month levered FCF margin is 298% higher than the 3.61% industry average.

For the fiscal first quarter that ended March 31, 2023, HGV’s total revenues increased 19.9% year-over-year to $934 million. Its adjusted net income rose 26.8% year-over-year to $90 million.

Its adjusted EBITDA increased 7.9% year-over-year to $218 million. Additionally, its adjusted EPS came in at $0.79, representing an increase of 36.2% year-over-year.

Street expects HGV’s EPS and revenue for the quarter ended June 30, 2023, is expected to increase 38.3% and 6% year-over-year to $0.83 and $1 billion, respectively. Over the past nine months, the stock has gained 35.6% to close the last trading session at $46.07.

HGV’s solid prospects are reflected in its POWR Ratings. It has an overall rating of B, which translates to a Buy in our proprietary rating system.

It has a B grade for Value and Momentum. It is ranked #8 in the same industry. Click here to see HGV’s ratings for Growth, Stability, Sentiment, and Quality.

Stock to Sell:

Sonder Holdings Inc. (SOND)

SOND engages in the hospitality business. It operates and manages properties comprising 1-, 2-, and 3+ bedroom; and studio apartments, as well as 1-bedroom hotel rooms for leisure travelers and families, digital nomads, and business travelers in North America, Europe, and the Middle East.

SOND’s 0.79% trailing-12-month levered FCF margin is 78.2% lower than the 3.61% industry average. Its 0.32x trailing-12-month asset turnover ratio is 68.4% lower than the 1.01x industry average. Likewise, its negative 11.12% trailing-12-month gross profit margin compares to the 35.25% industry average.

SOND’s loss from operations for the first quarter ended March 31, 2023, narrowed 11.5% year-over-year to $84.74 million. The company’s total costs and operating expenses increased 16.6% year-over-year to $205.48 million.

Its net loss attributable to common stockholders came in at $86.43 million, compared to a net income of $9.56 million in the year-ago period. Also, its net loss per share widened 116.7% year-over-year to $0.39.

For the quarter ended June 30, 2023, SOND’s EPS is expected to remain negative. It failed to surpass the consensus EPS estimate in three of the trailing four quarters. Over the past nine months, the stock has declined 69.2% to close the last trading session at $0.53.

SOND’s weak prospects are reflected in its POWR Ratings. It has an overall rating of D, equating to a Sell in our proprietary rating system.

Within the Travel - Hotels/Resorts industry, it is ranked #21. It has an F grade for Sentiment and a D for Growth and Stability. To see SOND’s rating for Value, Momentum, and Quality, click here.

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43 year investment veteran Steve Reitmeister shares his updated stock market outlook & top picks for the rest of 2023. Spoiler Alert: Steve still believes bear case most likely.

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MAR shares were trading at $184.23 per share on Tuesday morning, up $0.54 (+0.29%). Year-to-date, MAR has gained 24.41%, versus a 16.92% rise in the benchmark S&P 500 index during the same period.

Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.

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