Park Hotels & Resorts Inc (PK) - Comprehensive analysis
Following the successful development of a COVID-19 vaccine in November 2020, the hotel industry, along with the broader REIT sector, experienced a rally as investor confidence grew, with expectations of a return to pre-pandemic business levels. However, the emergence of the delta and omicron variants led to a decline in hotel stock prices, even as the rest of the sector continued to perform well. Many hotel companies have struggled to generate positive corporate cash flows since the onset of the pandemic; the rise in virus cases has hindered the industry's recovery and prolonged the period of negative cash flows.
We believe the current environment presents an opportunity for investors to acquire Park Hotels & Resorts at a price below our fair value estimate. We assess that the company's balance sheet is robust enough to withstand ongoing disruptions in the hotel industry for the foreseeable future. Although numerous businesses have delayed their plans to fully return employees to the office, which subsequently postpones the recovery of hotel demand driven by business travel, we do not expect this disruption to significantly impact the long-term demand for Park's portfolio of high-quality hotels.
Additionally, Park's management has demonstrated effective management of hotel net operating income during the pandemic, exceeding our expectations, which gives us confidence in their ability to navigate the current challenges facing the hotel industry. We anticipate that Park will recover from the pandemic, experiencing several years of strong growth, and will return to its 2019 peak levels by the end of 2024.
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