BofA Downgrades Hyatt, Summit Hotel Properties As Delta Variant Delays Business Travel Recovery

The delta variant of COVID-19 has delayed the anticipated return to in-office work and business travel, and one analyst said Monday that lodging stocks may continue to underperform.

The Analyst: Bank of America analyst Shaun Kelley has downgraded Hyatt Hotels Corporation (NYSE: H) from Neutral to Underperform and reiterated his $85 price target. Kelley also downgraded Summit Hotel Properties Inc (NYSE: INN) from Buy to Underperform and cut his price target from $12 to $11.

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The Thesis: In the downgrade note, Kelley said he is watching three key themes in the gaming and lodging space at the moment. First, seasonality and the delta COVID-19 variant are triggering a slowdown, particularly within the lodging space. Second, Kelley said it’s too soon to tell if the rolling off of emergency unemployment benefits is relieving labor market pressures. Third, he said a hot M&A environment and a positive gaming backdrop have created a positive backdrop for gaming REITs.

Kelley said he still remains positive on the lodging group as a whole, but Hyatt and Summit may lag their peers in the near term. He said Hyatt’s transition to a more capital-light model, its recent targeted asset sales and its acquisition of Apple Leisure may put the company in a better position for later in the lodging cycle.

“For Summit, we prefer the higher operating leverage and earnings growth of full-service REITs at this moment but will look to be more constructive on select service REITs as the corporate recovery matures and the operating efficiency and yields of select-service portfolios start to outshine their full-service peers,” Kelley said.

Benzinga’s Take: Many companies delayed their return-to-office plans in August and September, and Kelley reported industry insiders to believe the corporate travel recovery has now been delayed roughly two or three months due to the delta variant. Barring the arrival of a new, vaccine-resistant COVID-19 variant, the corporate travel business may be back in full swing by the beginning of 2022.

Photo: Courtesy Hyatt Hotels Corporation