How are energy investors positioned?
On Friday, Benchmark analysts upheld their Buy rating and $48.00 price target for H World Group Ltd. (NASDAQ: HTHT) stock, currently trading at $37.80. According to InvestingPro analysis, the stock appears undervalued, with analysts setting targets as high as $57.00. The company, known for its hotel operations and boasting an $11.8 billion market cap, recently posted fourth-quarter results that surpassed expectations. This performance was attributed to a year-over-year decrease in Revenue per Available Room (RevPAR) pressure, buoyed by a strong demand for leisure travel.
In their assessment, Benchmark analysts noted that H World Group’s management anticipates a revenue growth of 2%-6% year-over-year for the fiscal year 2025, with a stable RevPAR. Although this guidance might appear conservative compared to the company’s recent 9.2% revenue growth, the analysts pointed out that the company’s move towards an asset-light model is expected to lead to revenue growth pressures in FY25 following the closure of owned/leased (O/L) hotels. InvestingPro data shows the company maintains strong financial health with a "GREAT" overall score, suggesting effective management of this transition.
Despite these pressures, the projected growth for Legacy HZ, a part of H World Group, is estimated to be 5%-9% year-over-year. This forecast is slightly higher than what Benchmark analysts had predicted. The anticipated growth is backed by the continued expansion of a high-quality hotel network and a strong increase in Membership and Franchise (M&F) revenue, which is expected to rise by 17%-20%.
As a result of these developments, Benchmark analysts have made slight adjustments to their financial forecasts for H World Group. They have reduced their FY25 revenue estimate to RMB 24.7 billion, which represents a 3.5% increase year-over-year. However, they have increased their FY25 adjusted EBITDA estimate to RMB 8.13 billion, reflecting the expected incremental operating leverage that would stem from the company’s shift to an asset-light business model. The analysts’ commentary underlines the potential for H World Group to leverage its strategic transformations to sustain growth and profitability in the coming years.
In other recent news, H World Group Limited (HK:1179) reported its fourth-quarter 2024 financial results, revealing a mixed performance. The company’s revenue for the quarter reached RMB6.02 billion ($825 million), surpassing analyst expectations of RMB5.68 billion. However, earnings per share fell short at RMB0.02, significantly below the anticipated RMB2.32. For the full year 2024, H World achieved a revenue of RMB23.9 billion ($3.3 billion), marking a 9.2% increase from 2023, though net income dropped to RMB3.0 billion ($418 million) from RMB4.1 billion the previous year. The Legacy-Huazhu segment, primarily operating in China, saw a 9.2% revenue increase in Q4, while the Legacy-DH segment, focused internationally, posted a 2.9% revenue gain. H World expanded its portfolio by opening 520 new hotels in Q4, bringing the total to 11,147 hotels with over a million rooms. Looking ahead to Q1 2025, the company anticipates revenue growth of 0-4% year-over-year, or 3-7% excluding its Legacy-DH business. The company plans to open around 2,300 new hotels in 2025 while closing approximately 600.
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