On Wednesday, InterContinental Hotels Group (IHG:LN) (NYSE: IHG) received a change in rating from Jefferies, moving from Buy to Hold, even as the price target was raised to £84.00 from the previous £64.00. The firm cited several reasons for the adjustment, including the company's long-term growth potential and upcoming catalysts, despite concerns over the current valuation and weaker core growth in the U.S. market.
The analyst from Jefferies noted that InterContinental Hotels Group is a "long-term compounder" with an impressive growth algorithm that is comparable to that of Marriott. The consensus forecast for the company's performance in 2024/25 is considered to be well-established, suggesting that expectations for the company's financial future are stable.
However, the full valuation and a slower core growth rate in the U.S. have prompted Jefferies to adopt a more cautious stance. The firm indicated that significant developments are expected in the second half of the year, which could influence the company's trajectory. These include the potential benefits from a credit card opportunity, an inflection in new unit growth (NUG), and a clearer picture of the U.S. market conditions.
Despite the downgrade, Jefferies acknowledges that InterContinental Hotels Group trades at a 6% price-to-earnings (PE) discount compared to Marriott, which may be attractive to some investors. This new price target of £84.00 reflects the analyst's recalibrated expectations for the stock.
InvestingPro Insights
InterContinental Hotels Group (IHG:LN) (NYSE: IHG) is currently trading at a market capitalization of $17.27 billion, with a Price to Earnings (P/E) ratio of 23.71, which is adjusted to 23.11 for the last twelve months as of Q4 2023. This indicates a relatively low P/E ratio compared to the company's near-term earnings growth, as the PEG ratio for the same period stands at a modest 0.21. Such metrics suggest that IHG's stock might be undervalued in terms of its growth potential, aligning with Jefferies' recognition of the company's long-term growth prospects.
Moreover, with a robust operating income margin of 47.32% for the last twelve months as of Q4 2023, IHG demonstrates strong profitability. This is a crucial factor considering the company's expansion strategies and the upcoming catalysts mentioned by Jefferies. Despite the concerns over weaker core growth in the U.S., the company has shown a significant price total return of 67.39% over the last year, which is indicative of strong market confidence in its performance.
An InvestingPro Tip highlights that IHG generally trades with low price volatility, which may provide some assurance to investors concerned about market fluctuations. Additionally, the company has been profitable over the last twelve months, which is a positive sign for potential investors. For those looking to delve deeper into IHG's financials and future prospects, InvestingPro offers additional insights and tips. In fact, there are 10 more InvestingPro Tips available for IHG, which can be explored further at: https://www.investing.com/pro/IHG.
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