The U.S. ISM manufacturing PMI has been in a downtrend for the last year, and this week it fell below the key 50 level for the first time since August 2016. In this week’s piece we examine the implications for our coverage by looking at industry stock returns over the last 25 years in relation to when PMI drops below 50 as well as when PMI eventually bottoms.
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U.S. RevPAR growth has been sluggish and has continued to decelerate. The weekly data reported by STR last week grew y/y (+1.2% y/y) for the first time in seven weeks, as the comps were particularly tough over that time period before easing a little for this last week. The forward indicators we track are showing mixed signs for future months, and in this week’s piece we’ll examine those indicators and discuss our outlook going forward.
Current reports indicate Hurricane Dorian is strengthening and could make landfall in Florida as a Category 3 storm on Sunday.
Resort fees are additional charges outside of advertised room rates (for access to the gym, pool, internet, etc.), which have been gaining more attention following criticism from consumers, OTAs, and some regulators. In this note we discuss the key issues and the financial impact to our coverage.
News reports this week (8/19-8/23) indicated Apollo’s interest in acquiring HGV, which we discussed here. This followed a recent 13F disclosure of a 4.5% stake by Centerbridge, which sparked investor speculation and may have forced Apollo to get the ball rolling, and it’s possible we could see interest from others begin to emerge, too. The chances of an HGV buyout have increased, though there are still some hurdles to overcome, like HLT sign-off and HGV management/shareholder sign-off on the right price. Ultimately, we believe these developments are positive for the group, even if nothing ends up happening, because this may have helped turn sentiment and put a floor in valuation knowing there may be large potential buyers at these distressed valuations (e.g. timeshare was down less than our coverage and the market on Friday’s sell off).
We’ve taken a fresh look at our assumptions for each company now that 2Q earnings season has been digested. Some estimates come up, some come down, and some don’t move as we just changed some of the assumptions with various offsets. Each is detailed below.
Late last night (8/19/19) The NY Post reported that Apollo is interested in acquiring HGV. Last year we discussed this potential outcome, examining HGV as a potential LBO candidate with Apollo as a possible acquiror with analysis, and that note can be found here. Last night’s article indicated sources believe the price could be up to $36/share (9x 2020 consensus EBITDA), which represents a 28% premium over the current share price. The article also indicated Apollo could acquire HGV at a premium or merge the company with Diamond Resorts – recall Apollo acquired Diamond in 2016.
VAC is hosting an analyst day on October 4, which we think could be a catalyst for the stock, which is trading at a depressed valuation. We have found historically stocks tend to outperform in the months leading up to investor events, and we would buy the stock now.
HST reported 2Q earnings yesterday afternoon (08/07/19) and hosted their call this morning. Adjusted EBITDAre was $460M, versus our $460M, consensus of $459M, and the implied guide of $445M-$480M. HST lowered FY19 EBITDAre guidance from $1,535M-$1,600M to $1,500M-$1,540M, representing a $47.5M cut at the midpoint, $21M of which is due to asset sales. The remainder seems attributed to softer RevPAR, as HST reduced FY guidance from 0%-+2% to -1%-0%. Shockingly, HST only reduced FY19 comp hotel margins by 5bp at the midpoint, as HST found other cost offsets.
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