By Teresa Rivas
Around this time each winter, at least in the Northeast, many people are bitten by the travel bug. Who wouldn't want to feel the sand between their toes rather than a snow shovel in their hands?
Weather patterns and booking cycles are just some of the many factors affecting travel-related companies and their shares, notes C. Patrick Scholes, a managing director at Truist Securities and longtime analyst of the lodging and leisure industry. Perhaps the most salient factor today is the bifurcation of the U.S. economy, he says. It has rewarded companies catering to well-off travelers, while restraining those that serve middle- and lower-income consumers.
Scholes spoke with Barron's on Jan. 21 about the outlook for lodging real estate investment trusts, cruise operators, hotel companies, and Airbnb. Consider this edited version of the conversation a guide to some attractive investment destinations.
Barron's : How should investors think about the travel industry, and opportunities in travel stocks?
C. Patrick Scholes: The key term right now is bifurcation. The upper-income end of the market, the luxury segment, is doing well. The mass-market segment isn't. That is reflected across all sorts of leisure travel, whether cruise lines, hotels, theme parks, or airlines. We see moderate growth rates for luxury revenue on a year-over-year basis, but moderate declines in companies that serve more of a mass-market consumer.
Is this bifurcation normal, or something new? It is new. Historically, we have never seen this degree of division.
The best and most transparent statistics are in the hotel industry, which reports RevPAR, or revenue per available room. RevPAR is a combination of occupancy -- how full your hotels are -- and room rates. In the fourth quarter, RevPAR for luxury was up 6% year over year. It fell 8% at the typical economy-branded hotel. That is a 14 percentage point difference.
We have never -- at least going back close to 40 years, during somewhat normal economic times -- seen that much bifurcation. Delta Air Lines offers another good example. [Delta said main-cabin ticket revenue fell 7% from a year earlier in its fourth quarter, while revenue from premium products increased 9%, the first time premium revenue eclipsed economy sales.] We also see it in theme parks, with Walt Disney theme parks doing well, but Six Flags, not so well. In my cruise industry research, you can see good trends for Viking, a higher-end brand, but far more lethargic trends for the Carnival cruise lines of the world.
You recently upgraded several REITs in the lodging sector. Why?
I made a contrarian call -- as contrarian as you can get in the hotel-stock world -- to upgrade Choice Hotels International to Buy. Choice Hotels is primarily a midscale and economy hotel REIT whose demand trends have been weak for the past two years. Based on our proprietary research, we see the trends getting less bad as the year progresses. We see RevPAR starting to turn very slightly positive. It won't be as strong at Choice Hotels as at a luxury company, but comparisons will become easier.
We estimate total 2026 RevPAR will be up 2.1%, compared with a decline in 2025, with adjusted earnings per share climbing to $7.44 from a likely $6.93 last year. [Choice Hotels will report full-year results on Feb. 19.] Our price target is $126, compared with a recent price of $105.
There was a big hurricane in the Southeast in the fourth quarter of 2024. These kinds of hotels tend to benefit from natural disasters because people need a place to stay while their houses are being repaired. That difficult comparison is now in the rearview mirror, so there are fairly easy comparisons coming up. Additionally, even though Choice operates midscale and economy hotels, it will benefit this year from the World Cup, and in July, the 250th anniversary of the U.S. That is going to be a big driver of leisure travel.
In addition, the hotel industry will benefit from what I call a perfect storm of holiday shifts, wherein pretty much every holiday schedule this year benefits the hotel industry. A good example is July 4, which leads into a weekend. That should be positive for both leisure and business travel. Juneteenth precedes a Friday. These changes make a difference for the industry.
Choice Hotels is oversold. Things will improve moderately this year, and that will make a difference in how investors think about the stock.
Which other hotel REITs do you like?
I also upgraded Host Hotels & Resorts to Buy, with a $21 price target. I expect about 4% RevPAR growth in 2026 and expanding adjusted Ebitda, or earnings before interest, taxes, depreciation, and amortization. I estimate the same for DiamondRock Hospitality, which I upgraded to Buy with an $11 price target.
Historically, at least for the past 10 years, I haven't been a big fan of the hotel REIT sector. I can't remember the last time I had Buy ratings on these stocks. But the favorable timing of holiday shifts and the World Cup will be revenue catalysts for them this year.
You aren't as bullish on hotel operators such as Hilton Worldwide Holdings or Marriott International. What issues do they face?
I like Hyatt Hotels, as it has the most exposure of the three to the luxury segment. Additionally, I like that Hyatt is still a bit of a catch-up story in growing its global footprint. It was later to the game with a franchise model, but has more catch-up opportunities. I have a Buy rating and a $168 price target, and forecast that 2026 systemwide RevPAR growth will be up 1.5% year over year. I see 2026 adjusted Ebitda of $1.3 billion, up 11.6% year over year.
Hilton and Marriott are great companies, but trade at or near peak valuations. If you are looking for more value and growth, I'd go with Hyatt and Choice over Hilton and Marriott.
When we talked at the end of 2025, you were also upbeat on the timeshare , or vacation ownership, stocks. Is that still the case?
Absolutely. I have been surprised, especially by Travel + Leisure, given these aren't luxury properties but cater to the middle and upper-middle class. The stock has done better than I expected. The management team deserves a lot of credit for good operations and creative ideas with new brands.
Marriott Vacations Worldwide has issues, including disappointing results and lower-than-average margins. The board finally woke up and asked the former CEO to leave. There is an interim CEO now. Marriott Vacations has a lot of opportunity, but has struggled operationally. Hopefully, this year it will turn a new leaf.
What are your thoughts on cruise operators?
Just as in the hotel an
d airline industries, bifurcation is a theme. The major brands -- whether it is the core Carnival, Royal Caribbean Cruises, or Norwegian Cruise Line Holdings brand -- are feeling the mass-market customer struggling.
Cruise lines differ from hotels and airlines in what we call the booking curve. The typical hotel or airline customer will book two to four weeks out. You can see pretty quickly if something is changing in underlying demand characteristics. The average cruise customer will book a vacation nine months out. We started to see the mass market slowing last spring, but that slowdown didn't appear in the financial results of the cruise companies until around now, as the companies were booked up through the fall.
I expect trends in the cruise industry to be soft at least in the first half of this year. That is reflective of a long booking curve
Of the Big Three, I have a Buy rating on Norwegian. It has been a challenging story, admittedly, but I like the catch-up opportunity with the company's private island, Great Stirrup Cay, which is supposed to open up this summer. Norwegian was late to the private-island game compared with peers, as private islands have been great sources of revenue growth. You won't see the catch-up opportunity in Norwegian's financial results until later this year. I rate the stock a Buy, with a $26 price target, and forecast that earnings per share will grow 24% this year, to $2.54. [Norwegian recently traded for $22.33.]
Lastly, Viking Holdings, which caters to the luxury market, has the best demand trends. But it is an expensive stock, at more than 22 times analysts' average 2026 earnings estimates. That is too rich for me.
Airbnb is another richly priced travel stock, trading at 25 times 2026 earnings estimates. What is your view of the company and the stock? The business model isn't so dissimilar at this point to OTAs [online travel agencies] or hotel brands that trade at half the valuation. The average price per room for Airbnb is about $65 a night, which puts it at the economy end of the scale. I don't like an expensive stock combined with exposure to the middle or lower-end consumer.
There is much better value in, say, Choice Hotels, or even Hilton or an online travel agency such as Booking.com.
Airbnb has had some new initiatives in the past couple of years, such as selling experiences. I have been skeptical about how much they can move the needle. Now the company is trying to get into the hotel OTA business. That is a crowded space, and that type of business gets a valuation that is basically half of what Airbnb gets. I have a Sell rating and a $107 price target on the shares. [They were recently around $124]. I forecast 8% annual growth in total nights and experiences revenue this year. I expected adjusted Ebitda to increase by 12.1%, to $4.78 billion. The good news is in the stock.
Thanks, Patrick.
Write to Teresa Rivas at teresa.rivas@barrons.com
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February 05, 2026 01:00 ET (06:00 GMT)
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