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On Monday, BofA Securities increased its rating on shares of Apple Hospitality REIT (NYSE:APLE) from Neutral to Buy, also raising the price target to $17.00 from the previous $16.00. The company, with a market capitalization of $3.64 billion and trailing twelve-month EBITDA of $461 million, has caught analysts' attention. The upgrade is based on several positive factors identified by BofA Securities, including the favorable location, geographic and segment mix of the company's select service portfolio. In addition, the limited capital needs due to the low average age of the assets and a dividend yield that stands above its peers were also highlighted as reasons for the upgrade.
BofA Securities' analyst pointed out the advantages of Apple (NASDAQ:AAPL) Hospitality's select service portfolio, which is expected to benefit from its strategic positioning. According to InvestingPro analysis, the company maintains a GREAT financial health score of 3.37, with particularly strong marks in cash flow and profitability. The analyst also noted the company's sound financial footing, with assets requiring minimal additional investment, which allows for a focus on operational efficiency and profitability.
The raised price target to $17 reflects a roll-forward of the target EBITDA multiple to 2025 estimates, maintaining a 12x multiple that aligns with the historical average of select service peers. This adjustment suggests a positive outlook on the company's earnings potential.
Apple Hospitality REIT's above-average dividend yield of 6.66% compared to its peers was also emphasized as a key attribute, offering investors a potentially attractive income stream. This yield, combined with the company's strong portfolio and financial health, underpins the analyst's decision to upgrade the stock rating. InvestingPro subscribers can access additional insights through comprehensive Pro Research Reports, which provide deep-dive analysis of 1,400+ US stocks including APLE.
Investors may view the upgrade and price target increase by BofA Securities as a sign of confidence in Apple Hospitality REIT's market position and financial stability. The company's shares are now rated Buy, indicating a favorable perspective from BofA Securities on its investment potential moving forward. InvestingPro analysis suggests the stock is currently trading below its Fair Value, supporting the positive outlook.
In other recent news, Apple Hospitality REIT reported stable earnings for the third quarter of 2024, with a modest rise in comparable hotels Revenue per Available Room (RevPAR) and continued monthly cash distributions to shareholders. The company also experienced a 1% year-over-year increase in comparable hotels RevPAR, primarily driven by improved rates. Adjusted EBITDAre and modified funds from operations (MFFO) also saw growth, with increases of 6% and 3% respectively.
In terms of asset management, three hotels were sold for approximately $41 million, with contracts in place for four more totaling about $31 million. The company plans to invest between $75-$85 million in capital expenditures in 2024.
BMO Capital Markets recently initiated coverage of Apple Hospitality REIT, assigning an Outperform rating to the stock and setting an $18.00 price target. This suggests a potential total return of 18%, indicating room for upside in the stock's future performance.
Looking ahead, Apple Hospitality refined its 2024 outlook, projecting net income between $204 million and $221 million. Despite market challenges, the company remains optimistic about its operating fundamentals and strategies for future growth.
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