On Friday, Bernstein analysts at SocGen Group revised their rating on InterContinental Hotels Group (IHG:LN) (NYSE: IHG) stock, moving it from Underperform to Market Perform. Accompanying this upgrade is a new price target set at GBP90.00, increased from the previous GBP85.70. The upgrade comes after a period of stock performance that saw the shares dip by 7% in U.S. dollar terms.
Currently trading at $121.83 with a market capitalization of $19.4 billion, IHG has demonstrated strong momentum with a 33.9% return over the past year, despite a 2.5% decline year-to-date. InvestingPro analysis indicates the stock is currently trading above its Fair Value.
The analysts' decision to lift the rating is influenced by a combination of factors, including the recent decline in InterContinental Hotels Group's stock price and positive adjustments to earnings following a credit card agreement. This deal is perceived to limit the downside risk to the stock. Furthermore, Bernstein analysts hold a more optimistic view on the Revenue Per Available Room (RevPAR) for the company's critical markets, particularly in the U.S. Mainstream and China sectors. This optimism reduces the likelihood of future earnings misses. With an impressive gross profit margin of 49.8% and a solid return on assets of 14.6%, IHG maintains a "GREAT" overall financial health score according to InvestingPro's comprehensive analysis.
Looking ahead, the analysts anticipate that the year 2025 may present challenges for InterContinental Hotels Group, primarily due to the expected loss of the Venetian contract. However, they also note that this loss is predicted to have a minimal effect on the company's earnings. In light of these projections, Bernstein analysts have made a slight adjustment to their valuation multiple, increasing it to 14.1x Next (LON:NXT) Twelve Months (NTM) EBITDA from the former 14.0x. This adjustment reflects their expectations for modestly higher growth and improved margin prospects for InterContinental Hotels Group. For deeper insights into IHG's valuation and growth prospects, InvestingPro subscribers can access exclusive analysis, including 14 additional ProTips and comprehensive financial metrics in the Pro Research Report.
The analysts' commentary underscores their belief that the downside for InterContinental Hotels Group's stock is now limited. They state, "We upgrade IHG to Market-Perform; a combination of recent stock weakness and earnings upgrades after the credit card deal means downside is now limited. We are also more bullish on RevPAR for IHG's key markets, which makes misses less likely."
The revised rating and price target by Bernstein reflect a shift in their assessment of InterContinental Hotels Group's market position and future performance, signaling a neutral stance on the stock as of Friday.
In other recent news, InterContinental Hotels Group (IHG) has entered into new co-brand credit card agreements in the United States, extending its partnership with JPMorgan Chase (NYSE:JPM) Bank and other financial services partners through 2036. These contracts are expected to enhance IHG's ancillary revenue streams, with projections indicating a doubling of the $39 million in operating profit from 2023 to 2025, and a more than threefold increase by 2028.
The agreements are part of IHG's strategy to expand ancillary products and fee streams, contributing to the company's goal of improving fee margin annually. Additionally, IHG anticipates receiving upfront cash inflows totaling $137 million pre-tax over the coming months.
The IHG One Rewards program is predicted to reach approximately 145 million members globally by year-end, with a 10% year-on-year growth in 2024 enrollments. Notably, IHG's co-brand credit card holders have shown increased engagement, with new accounts surging by over 60%, and total card spend rising by around 30% compared to two years prior.
In other developments, IHG reported a 1.5% increase in room revenue for the third quarter, attributed to robust summer demand in Europe. Goldman Sachs (NYSE:GS) upgraded InterContinental's shares from 'Neutral' to 'Buy', projecting a 15.1% compound annual growth rate in earnings for the company from 2023 to 2028.
Lastly, IHG announced the approval of a £4 billion Euro Medium Term Note Programme and declared an interim dividend for 2024 at a rate of 40.8 pence per ordinary share, reflecting its commitment to shareholder value.
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