We recently published a list of 10 Best Hotel Stocks To Buy Now. In this article, we are going to take a look at where DiamondRock Hospitality Company (NYSE:DRH) stands against other best hotel stocks.
According to Cognitive Market Research, the size of the global hotel market was $784.82 billion in 2023 and is projected to grow to $1,126.04 billion by 2030. From 2023 to 2030, the hotel industry’s compound annual growth rate is anticipated to be 5.29%. Regionally, North America holds a substantial 30.66% market share, mostly because of the region’s abundance of hotels and resorts.
Recently, in Q2 2024, demand for hotels rose 1.3% year over year, above a 0.6% increase in supply and leading to a 0.7% increase in occupancy in the US. Secondly, a 2.2% year-over-year rise in Q2 2024 revenue per available room (RevPAR) was driven by higher occupancy combined with a 1.5% increase in average daily rate (ADR) YoY. The benefits were mostly due to two factors: the early Easter this year, which came in late Q1 2024 and contributed to higher business travel in the second quarter of this year compared to the previous year, and the complete solar eclipse, which encouraged more leisure travel throughout a significant portion of the US. Although the demand for hotels increased in the second quarter of 2024, short-term rentals and cruise lines maintained their market share gains. Additionally, the average hotel hourly wage was still more than $10 less than the average hourly wage in the country.
As per Frederic Dominioni, the Chief Revenue Officer of Solonis and a leading provider of modern property management solutions, there are five important trends driving the recovery in the hotel industry post-pandemic. Firstly, guests’ expectations are rising because of rising room rates, which increased by 54% from January 2022 to 2023. Secondly, the rise in “workcation” travels brought about by hybrid work has raised the need for flexible locations and services. Third, there is still a high desire for self-service choices and mobile technology, which helps to ease the staff shortage. Fourth, with 88% of travelers looking for local adventures, travel experiences have taken center stage. Lastly, given that 65% of travelers give priority to eco-friendly lodging, sustainability is essential. Hotels will prosper if they adjust to these developments through improving amenities and customizing visitor experiences.
Looking ahead, CBRE’s 2024 Global Hotels Outlook reveals that 2024 will be another year of progress for the US economy after 2023 saw RevPAR reach a record high. The continuous improvement in inbound foreign travel, the meetings and group events segment’s solid performance, and rising interest from leisure visitors are all expected to contribute to RevPAR growth, which is predicted to reach almost 3% year over year. Urban areas that are more appealing to leisure travelers and have more expensive hotels should do well, but competition from other sources, such as cruise lines, short-term rentals, and camping, is projected to restrict demand as well as pricing for traditional hotels. Hotel salary growth slowed to 4.6% in Q2 2024 from 5.5% in Q1, but it was still higher than the 4.0% hourly wage rise for all employees due to a decrease in job opportunities in the hotel industry. In Q2 2024, occupancy rates for all types of locations stayed below 2019 levels. Interstate and town sites were the most similar to their 2019 levels, at 99%, while urban and resort destinations were 94% and 96%, respectively.
On the other hand, Warren Marr, US Hospitality & Leisure Industry Advisor stated:
“Continued economic uncertainty, an upcoming election, and continued geopolitical tensions are expected to impact hotel performance in the US through 2025. Since our last issue of Hospitality Directions US in November, we’ve seen two additional quarters of decline in hotel occupancies, for a total of four, but expect to see a gradual rebound the balance of this year and into next, off of easier comps. That said, we expect average daily rate growth to trail PCE inflation through the rest of this year and 2025.”
With that said, here are the 10 Best Hotel Stocks To Buy Now.
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Aerial view of a luxury hotel, representing the company’s premium quality offerings.
DiamondRock Hospitality Company (NYSE:DRH)
Number of Hedge Fund Holders: 21
A real estate investment trust, DiamondRock Hospitality Company (NYSE:DRH) is the owner of hotel establishments. Its operations involve the purchase, ownership, management, and renovation of full-service hotel properties around the US. Cities like Chicago, Boston, New York, Denver, and others are among those where it operates. The bulk of the hotel brands that are part of the company’s holdings include Hilton, Starwood, and Marriott. The revenue is distributed between segments (room, food and beverage, and others). The majority of the revenue is generated by the room segment. The company serves group clients as well as transient leisure and business clients.
Its strategic focus on shareholder value through an optimized portfolio of drive-to and leisure locations as well as specific metropolitan areas is going to be presented to investors. The firm is predicting a strong financial future because it has strengthened its leadership team to spur growth and take advantage of the leisure travel industry’s resiliency.
Revenue for the second quarter of 2024 was $309.3 million, up by 6.19% YoY and significantly higher than the $301.77 million consensus. Revenue from food and lodging was increased by strong group demand, especially in urban sites. DiamondRock Hospitality Company (NYSE:DRH) revised its Bourbon Orleans restoration plan to put more of an emphasis on strategic expenditures and increased its full-year earnings estimate.
Reiterating its full-year 2024 outlook shows confidence in ongoing revenue growth, notably from the leisure and group travel segments, because of its strong balance sheet and liquidity.
Strong management tactics and a focus on EPS growth were cited by the analyst, Michael Bellisario, who kept his Buy rating on Diamondrock with a $10 price target. An optimistic view is supported by the company’s commitment to disciplined capital allocation, share buybacks, asset sales, and robust group bookings. Confidence in the stock’s worth is also reinforced by upward revisions to earnings and moderate leverage.
Richard S. Pzena’s Pzena Investment Management is the largest shareholder in the company, with 8,835,117 shares worth $74.66 million.
Overall, DRH ranks 9th on our list of Best Hotel Stocks To Buy Now. While we acknowledge the potential of DRH as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than DRH but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
