Marriott International, Inc. (MAR) and Hilton Worldwide Holdings Inc. (HLT) are set to report third quarter earnings this week, shining a spotlight on the struggling travel industry at the same time that major European countries are entering new lockdowns. It's unlikely that the United States will head down that path, but mobility is likely to crash through the fourth quarter due to the surging epidemic, colder weather, and discontent following the presidential election. None of this bodes well for hotel occupancy into the second quarter of 2021.

Key Takeaways

  • Hilton was a stronger performer than Marriott in the year before the pandemic.
  • Both stocks have broken long-term support at their 200-day moving averages.
  • Business travel may not return to prior levels for many years due to the advent of the virtual meeting space.

American travel will continue at a reduced pace this winter, keeping the lights on at these well-known brands. However, Hilton operates lodgings in 118 countries, while Marriott's exposure is even greater at 131 countries. Many nations without lockdowns have restricted foreign travelers, forcing operators to rely on local traffic. That makes China's contribution to income extremely important because it has fully recovered from the pandemic, at least to this point.

Unfortunately for bulls, an effective vaccine may not signal a return to normalcy for the travel industry in 2021, due to skepticism about political meddling in vaccine approvals and fallout from high unemployment rates. In addition, the collapse of business travel in favor of the virtual meeting space this year could mark a long-term paradigm shift for U.S. corporations, affecting hotel and airline income through the middle of this decade.

Wall Street is bullish but cautious on both stocks, with "Moderate Buy" ratings on Marriott and Hilton based upon nearly equal numbers of "Buy" and "Hold" ratings. Neither company is expected to report a third quarter profit, but analysts are forecasting relatively small losses at $0.08 per share for Marriott and $0.04 per share for Hilton. Both chains have the power to beat those expectations, given the surge in U.S. travel until COVID-19 numbers rocketed higher in October.

A paradigm shift refers to a major change in the concepts and practices of how something works or is accomplished. A paradigm shift can happen within a wide variety of contexts. Paradigm shifts often happen when new technology is introduced that radically alters the production process or manufacturing of a good or service.

Chart showing the share price performance of Marriott International, Inc. (MAR)
TradingView.com

Marriott stock topped out near $150 in January 2018 and entered a trading range that posted a 52-week low at year end. It returned to the high in July 2019 and reversed, posting a higher low in October. A second rally in December mounted the barrier, ahead of a failed breakout that completed a triple top breakdown during the pandemic selloff. The stock posted a six-year low in March and bounced into June, reversing at the broken 200-day exponential moving average (EMA).

The on-balance volume (OBV) accumulation-distribution indicator topped out in October 2018, long after price, and mounted that level by a few ticks in the first quarter of 2020. OBV fell to a three-year low in March and surged higher into June, recouping about two-thirds of the prior loss. It has been drifting sideways since that time, but lower highs within the short-term pattern point to growing weakness that could precede a new distribution phase.

Chart showing the share price performance of Hilton Worldwide Holdings Inc. (HLT)
TradingView.com

Hilton shares rallied through most of 2019 and into 2020, posting an all-time high at $115.48 in February and selling off more than 70 points into March's three-year low. The stock bounced into the broken 200-day EMA in June and reversed, settling into a trading range that has crisscrossed the moving average repeatedly into November. This marks a holding pattern while the market measures the ongoing impact of the virus and its long-term implications.

OBV fell to a multi-year low with price and bounced into June before rolling into a shallow distribution phase that is now struggling to hold multi-month lows. It will take just a small push to break this trading floor and drop accumulation readings into a test of the March low. In turn, that bearish event would raise the odds for a price breakdown and retracement that could stretch into the $60s.

The triple top is a type of chart pattern used in technical analysis to predict the reversal in the movement of an asset's price. Consisting of three peaks, a triple top signals that the asset may no longer be rallying and that lower prices may be on the way. Triple tops may occur on all time frames, but in order for the pattern to be considered a triple top, it must occur after an uptrend.

The Bottom Line

Marriott and Hilton earnings this week are unlikely to ignite optimism about a hotel sector return to normalcy.

Disclosure: The author held no positions in the aforementioned securities at the time of publication.