On Thursday, Park Hotels & Resorts Inc . (NYSE:PK) saw its stock rating upgraded from Hold to Buy by Jefferies, who also increased the company's price target from $11.00 to $22.00.
The upgrade was based on the assessment that the risks previously associated with the company have subsided sufficiently to now view its leverage as a positive factor.
Jefferies analyst pointed out that the challenges Park Hotels faced due to its significant market exposure, particularly in Hawaii (25%) and San Francisco (18%), as well as its financial leverage, which was 4.5 times in 2019 and grew to 5.2 times in 2022, are expected to be largely alleviated.
This anticipated improvement is attributed to the clarity brought about by vaccine developments by the second half of 2021.
The focus for Park Hotels is now projected to shift towards operational execution improvements, particularly following the acquisition of Chesapeake Lodging Trust's portfolios in September 2019. The analyst suggests that the company's strategic cost-cutting measures at both the hotel and above-hotel levels are set to contribute to a significant increase in EBITDA margins.
The improvements in EBITDA margins are quantified by the analyst, who estimates an increase of over 200 basis points on a comparable pro forma basis from 2019 to 2022. This projection indicates a positive outlook for the company's financial performance and efficiency in the coming years.
The revised price target of $22.00 reflects a doubling from the previous target of $11.00, signaling a strong confidence in the company's potential for growth and profitability.
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