Business travel may never fully return, hurting hotel stocks, Morgan Stanley says

Published Fri, Nov 6 202011:12 AM EST

(This story is for CNBC PRO subscribers only.) Business travel may never return to its pre-pandemic levels, hurting hotels over the long term, Morgan Stanley said Friday in a note to clients. The firm's analysis is based on an October survey of around 200 corporate travel managers who oversee $8 billion in travel spend. The managers said they believe travel spend in 2021 will be 53% below 2019's levels, and that beginning in 2022, 22% of meetings will be conducted virtually. "Given that corporate travel is 50-70% of revenue for most hotel companies, this could suggest a 10-14% drop in revenue relative to pre-pandemic levels long term," Morgan Stanley analyst Jamie Rollo said. Rollo noted that the anticipated shift to virtual meetings has increased since the firm conducted the same survey mid-year, during which managers saw 19% of meetings turning virtual by 2022. When it comes to hotel stocks, Morgan Stanley is equal-weight the sector. On a relative basis the firm prefers Extended Stay to Hyatt . This reflects "preference for long-term structural leisure over corporate demand, which is not reflected in current relative to history valuations." Hyatt reported third quarter earnings on Wednesday that missed analyst expectations on the top and bottom line. The company lost $1.48 per share during the period, which was larger than the $1.30 loss anticipated by analysts surveyed by Refinitiv. The company said it expects demand to remain "uneven" over the coming months. Extended Stay is expected to report its latest quarterly results on Monday after the market closes. Shares of Hyatt were up 1%, while Extended Stay added 2% on Friday. The stocks are down 36% and 14% this year, respectively. When it comes to hotels based in Europe, Morgan Stanley favors Whitbread over Scandic, the latter of which it has an underweight rating on. In China, the firm prefers Jin Jiang due to its "cheaper valuation, higher potential for cost cuts and aggressive room expansion," relative to competitor HTHT. - CNBC's Michael Bloom contributed reporting.

Grand Hyatt at SFO

Source: SFO Airport

(This story is for CNBC PRO subscribers only.)

Business travel may never return to its pre-pandemic levels, hurting hotels over the long term, Morgan Stanley said Friday in a note to clients.

The firm's analysis is based on an October survey of around 200 corporate travel managers who oversee $8 billion in travel spend. The managers said they believe travel spend in 2021 will be 53% below 2019's levels, and that beginning in 2022, 22% of meetings will be conducted virtually.